Correlation Between Sun Life and Linedata Services

Can any of the company-specific risk be diversified away by investing in both Sun Life and Linedata Services 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 Linedata Services 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 Linedata Services SA, you can compare the effects of market volatilities on Sun Life and Linedata Services 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 Linedata Services. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sun Life and Linedata Services.

Diversification Opportunities for Sun Life and Linedata Services

0.61

Correlation Coefficient

Sun Life  Linedata Services

Poor diversification

The 3 months correlation between Sun and Linedata is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Sun Life Financial and Linedata Services SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Linedata Services 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 Linedata Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Linedata Services has no effect on the direction of Sun Life i.e., Sun Life and Linedata Services go up and down completely randomly.

Pair Corralation between Sun Life and Linedata Services

Assuming the 90 days horizon Sun Life Financial is expected to under-perform the Linedata Services. But the stock apears to be less risky and, when comparing its historical volatility, Sun Life Financial is 1.06 times less risky than Linedata Services. The stock trades about -0.08 of its potential returns per unit of risk. The Linedata Services SA is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  8,100  in Linedata Services SA on December 22, 2024 and sell it today you would lose (180.00) from holding Linedata Services SA or give up 2.22% of portfolio value over 90 days.

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

Sun Life Financial  vs.  Linedata Services SA

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. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Linedata Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days Linedata Services SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Linedata Services is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Sun Life and Linedata Services

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

The idea behind Sun Life Financial and Linedata Services SA 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.