Correlation Between Western Asset and Sun Life

Can any of the company-specific risk be diversified away by investing in both Western Asset 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 Western Asset and Sun Life into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Western Asset Investment and Sun Life Financial, you can compare the effects of market volatilities on Western Asset 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 Western Asset with a short position of Sun Life. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and Sun Life.

Diversification Opportunities for Western Asset and Sun Life

-0.41

Correlation Coefficient

Western Asset  Sun Life

Very good diversification

The 3 months correlation between Western and Sun is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Investment 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 Western Asset 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 Western Asset Investment 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 Western Asset i.e., Western Asset and Sun Life go up and down completely randomly.

Pair Corralation between Western Asset and Sun Life

Considering the 90-day investment horizon Western Asset is expected to generate 15.26 times less return on investment than Sun Life. But when comparing it to its historical volatility, Western Asset Investment is 2.1 times less risky than Sun Life. It trades about 0.02 of its potential returns per unit of risk. Sun Life Financial is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  4,894  in Sun Life Financial on September 24, 2024 and sell it today you would earn a total of  998.00  from holding Sun Life Financial or generate 20.39% return on investment over 90 days.

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

Western Asset Investment  vs.  Sun Life Financial

Western Asset Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Asset Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's technical and fundamental indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Sun Life Financial

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sun Life Financial are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, Sun Life is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Western Asset and Sun Life

The main advantage of trading using opposite Western Asset and Sun Life positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Asset 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 Western Asset Investment 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.