Correlation Between Diversified Royalty and Manulife Financial

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

By analyzing existing cross correlation between Diversified Royalty Corp and Manulife Financial Corp, you can compare the effects of market volatilities on Diversified Royalty and Manulife 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 Diversified Royalty with a short position of Manulife Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diversified Royalty and Manulife Financial.

Diversification Opportunities for Diversified Royalty and Manulife Financial

-0.39

Correlation Coefficient

Diversified Royalty  Manulife Financial

Very good diversification

The 3 months correlation between Diversified and Manulife is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Diversified Royalty Corp and Manulife Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Manulife Financial Corp and Diversified Royalty 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 Diversified Royalty Corp are associated (or correlated) with Manulife Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Manulife Financial Corp has no effect on the direction of Diversified Royalty i.e., Diversified Royalty and Manulife Financial go up and down completely randomly.

Pair Corralation between Diversified Royalty and Manulife Financial

Assuming the 90 days trading horizon Diversified Royalty Corp is expected to under-perform the Manulife Financial. In addition to that, Diversified Royalty is 1.38 times more volatile than Manulife Financial Corp. It trades about -0.04 of its total potential returns per unit of risk. Manulife Financial Corp is currently generating about 0.21 per unit of volatility. If you would invest  1,676  in Manulife Financial Corp on October 10, 2024 and sell it today you would earn a total of  54.00  from holding Manulife Financial Corp or generate 3.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Diversified Royalty Corp  vs.  Manulife Financial Corp

Diversified Royalty Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diversified Royalty Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Diversified Royalty is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Manulife Financial Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Manulife Financial Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, Manulife Financial is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Diversified Royalty and Manulife Financial

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

The idea behind Diversified Royalty Corp and Manulife Financial Corp 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.