Correlation Between SUN LIFE and Carpenter Technology

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

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

Diversification Opportunities for SUN LIFE and Carpenter Technology

0.79

Correlation Coefficient

SUN LIFE  Carpenter Technology

Poor diversification

The 3 months correlation between SUN and Carpenter is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding SUN LIFE FINANCIAL and Carpenter Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carpenter Technology and SUN LIFE 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 SUN LIFE FINANCIAL are associated (or correlated) with Carpenter Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carpenter Technology has no effect on the direction of SUN LIFE i.e., SUN LIFE and Carpenter Technology go up and down completely randomly.

Pair Corralation between SUN LIFE and Carpenter Technology

Assuming the 90 days trading horizon SUN LIFE is expected to generate 3.84 times less return on investment than Carpenter Technology. But when comparing it to its historical volatility, SUN LIFE FINANCIAL is 2.35 times less risky than Carpenter Technology. It trades about 0.12 of its potential returns per unit of risk. Carpenter Technology is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  14,500  in Carpenter Technology on October 26, 2024 and sell it today you would earn a total of  5,700  from holding Carpenter Technology or generate 39.31% return on investment over 90 days.

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

SUN LIFE FINANCIAL  vs.  Carpenter Technology

SUN LIFE FINANCIAL

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SUN LIFE FINANCIAL are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, SUN LIFE may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Carpenter Technology

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Carpenter Technology are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Carpenter Technology reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SUN LIFE and Carpenter Technology

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

The idea behind SUN LIFE FINANCIAL and Carpenter Technology 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.