Correlation Between Discover Financial and SUN LIFE

Can any of the company-specific risk be diversified away by investing in both Discover Financial and SUN LIFE 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 Discover Financial and SUN LIFE into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Discover Financial Services and SUN LIFE FINANCIAL, you can compare the effects of market volatilities on Discover Financial and SUN LIFE 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 Discover Financial with a short position of SUN LIFE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Discover Financial and SUN LIFE.

Diversification Opportunities for Discover Financial and SUN LIFE

0.34

Correlation Coefficient

Discover Financial  SUN LIFE

Weak diversification

The 3 months correlation between Discover and SUN is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and SUN LIFE FINANCIAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SUN LIFE FINANCIAL and Discover Financial 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 Discover Financial Services are associated (or correlated) with SUN LIFE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SUN LIFE FINANCIAL has no effect on the direction of Discover Financial i.e., Discover Financial and SUN LIFE go up and down completely randomly.

Pair Corralation between Discover Financial and SUN LIFE

Assuming the 90 days horizon Discover Financial Services is expected to under-perform the SUN LIFE. In addition to that, Discover Financial is 2.05 times more volatile than SUN LIFE FINANCIAL. It trades about -0.08 of its total potential returns per unit of risk. SUN LIFE FINANCIAL is currently generating about -0.09 per unit of volatility. If you would invest  5,591  in SUN LIFE FINANCIAL on December 21, 2024 and sell it today you would lose (391.00) from holding SUN LIFE FINANCIAL or give up 6.99% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Discover Financial Services  vs.  SUN LIFE FINANCIAL

Discover Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Discover Financial Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

SUN LIFE FINANCIAL

Risk-Adjusted Performance

Very Weak

Over the last 90 days SUN LIFE FINANCIAL has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Discover Financial and SUN LIFE

The main advantage of trading using opposite Discover Financial and SUN LIFE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Discover Financial position performs unexpectedly, SUN LIFE 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 SUN LIFE will offset losses from the drop in SUN LIFE's long position.

The idea behind Discover Financial Services and SUN LIFE FINANCIAL 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.

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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 Global Correlations module to find global opportunities by holding instruments from different markets.