Correlation Between MGIC Investment and Sun Life

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

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

Diversification Opportunities for MGIC Investment and Sun Life

0.36

Correlation Coefficient

MGIC Investment  Sun Life

Weak diversification

The 3 months correlation between MGIC and Sun is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding MGIC Investment Corp 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 MGIC Investment 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 MGIC Investment Corp 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 MGIC Investment i.e., MGIC Investment and Sun Life go up and down completely randomly.

Pair Corralation between MGIC Investment and Sun Life

Considering the 90-day investment horizon MGIC Investment Corp is expected to under-perform the Sun Life. But the stock apears to be less risky and, when comparing its historical volatility, MGIC Investment Corp is 1.53 times less risky than Sun Life. The stock trades about -0.07 of its potential returns per unit of risk. The Sun Life Financial is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  5,639  in Sun Life Financial on December 4, 2024 and sell it today you would lose (51.00) from holding Sun Life Financial or give up 0.9% of portfolio value over 90 days.

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

MGIC Investment Corp  vs.  Sun Life Financial

MGIC Investment Corp

Risk-Adjusted Performance

Very Weak

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

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

Pair Trading with MGIC Investment and Sun Life

The main advantage of trading using opposite MGIC Investment and Sun Life positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MGIC Investment 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 MGIC Investment Corp 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.