Correlation Between Manulife Financial and Aflac Incorporated

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

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

Diversification Opportunities for Manulife Financial and Aflac Incorporated

0.66

Correlation Coefficient

Manulife Financial  Aflac Incorporated

Poor diversification

The 3 months correlation between Manulife and Aflac is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Manulife Financial Corp and Aflac Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aflac Incorporated and Manulife Financial 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 Manulife Financial Corp are associated (or correlated) with Aflac Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aflac Incorporated has no effect on the direction of Manulife Financial i.e., Manulife Financial and Aflac Incorporated go up and down completely randomly.

Pair Corralation between Manulife Financial and Aflac Incorporated

Considering the 90-day investment horizon Manulife Financial Corp is expected to generate 1.15 times more return on investment than Aflac Incorporated. However, Manulife Financial is 1.15 times more volatile than Aflac Incorporated. It trades about -0.04 of its potential returns per unit of risk. Aflac Incorporated is currently generating about -0.07 per unit of risk. If you would invest  3,213  in Manulife Financial Corp on November 29, 2024 and sell it today you would lose (133.00) from holding Manulife Financial Corp or give up 4.14% of portfolio value over 90 days.

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

Manulife Financial Corp  vs.  Aflac Incorporated

Manulife Financial Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Manulife Financial Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Manulife Financial is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Aflac Incorporated

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aflac Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, Aflac Incorporated is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Manulife Financial and Aflac Incorporated

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

The idea behind Manulife Financial Corp and Aflac Incorporated 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.