Correlation Between JAPAN TOBACCO and Sun Life

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

By analyzing existing cross correlation between JAPAN TOBACCO UNSPADR12 and Sun Life Financial, you can compare the effects of market volatilities on JAPAN TOBACCO 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 JAPAN TOBACCO with a short position of Sun Life. Check out your portfolio center. Please also check ongoing floating volatility patterns of JAPAN TOBACCO and Sun Life.

Diversification Opportunities for JAPAN TOBACCO and Sun Life

0.13

Correlation Coefficient

JAPAN TOBACCO  Sun Life

Average diversification

The 3 months correlation between JAPAN and Sun is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding JAPAN TOBACCO UNSPADR12 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 JAPAN TOBACCO 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 JAPAN TOBACCO UNSPADR12 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 JAPAN TOBACCO i.e., JAPAN TOBACCO and Sun Life go up and down completely randomly.

Pair Corralation between JAPAN TOBACCO and Sun Life

Assuming the 90 days trading horizon JAPAN TOBACCO is expected to generate 1.01 times less return on investment than Sun Life. In addition to that, JAPAN TOBACCO is 1.46 times more volatile than Sun Life Financial. It trades about 0.05 of its total potential returns per unit of risk. Sun Life Financial is currently generating about 0.07 per unit of volatility. If you would invest  4,002  in Sun Life Financial on October 21, 2024 and sell it today you would earn a total of  1,698  from holding Sun Life Financial or generate 42.43% return on investment over 90 days.

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

JAPAN TOBACCO UNSPADR12  vs.  Sun Life Financial

JAPAN TOBACCO UNSPADR12

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JAPAN TOBACCO UNSPADR12 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, JAPAN TOBACCO is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Sun Life Financial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sun Life Financial are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Sun Life may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with JAPAN TOBACCO and Sun Life

The main advantage of trading using opposite JAPAN TOBACCO and Sun Life positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if JAPAN TOBACCO 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 JAPAN TOBACCO UNSPADR12 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.