Correlation Between Bank of Nova Scotia and Fairfax Financial

Can any of the company-specific risk be diversified away by investing in both Bank of Nova Scotia and Fairfax Financial at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Bank of Nova Scotia and Fairfax Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bank of Nova and Fairfax Financial Holdings, you can compare the effects of market volatilities on Bank of Nova Scotia and Fairfax Financial and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Bank of Nova Scotia with a short position of Fairfax Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of Nova Scotia and Fairfax Financial.

Diversification Opportunities for Bank of Nova Scotia and Fairfax Financial

0.96

Correlation Coefficient

Bank of Nova Scotia  Fairfax Financial

Almost no diversification

The 3 months correlation between Bank and Fairfax is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Nova and Fairfax Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax Financial and Bank of Nova Scotia is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Bank of Nova are associated (or correlated) with Fairfax Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fairfax Financial has no effect on the direction of Bank of Nova Scotia i.e., Bank of Nova Scotia and Fairfax Financial go up and down completely randomly.

Pair Corralation between Bank of Nova Scotia and Fairfax Financial

Assuming the 90 days trading horizon Bank of Nova is expected to generate 1.21 times more return on investment than Fairfax Financial. However, Bank of Nova Scotia is 1.21 times more volatile than Fairfax Financial Holdings. It trades about 0.44 of its potential returns per unit of risk. Fairfax Financial Holdings is currently generating about 0.27 per unit of risk. If you would invest  6,632  in Bank of Nova on April 24, 2025 and sell it today you would earn a total of  1,037  from holding Bank of Nova or generate 15.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Bank of Nova  vs.  Fairfax Financial Holdings

Bank of Nova Scotia

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Nova are ranked lower than 34 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Bank of Nova Scotia displayed solid returns over the last few months and may actually be approaching a breakup point.

Fairfax Financial

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating technical indicators, Fairfax Financial may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Bank of Nova Scotia and Fairfax Financial

The main advantage of trading using opposite Bank of Nova Scotia and Fairfax Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of Nova Scotia position performs unexpectedly, Fairfax Financial can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Fairfax Financial will offset losses from the drop in Fairfax Financial's long position.

The idea behind Bank of Nova and Fairfax Financial Holdings pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.