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Royal Bank of Canada (RY)
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Toronto-Dominion Bank (The) (TD)
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Bank of Nova Scotia (The) (BNS)
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Hamilton Canadian Bank Mean Reversion Index ETF (HCA)
Q: Since the Canadian banks eventually trade in line with each other,would it make sense to sell Royal and buy BNS,TD,etc.?
5i Research Answer:
There have been studies indicating Canadian bank stocks do have some reversion to the mean average. There is even an ETF (HCA) based on this theme. But it can be a very painful strategy at times. BNS has been a long term underperformer, for example. We would not follow this strategy if taxes apply. We would generally prefer to own a couple of banks and hold for dividends and growth, rather than attempting to play one off of the other.