Correlation Between Power and Manulife Financial

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

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

Diversification Opportunities for Power and Manulife Financial

0.97

Correlation Coefficient

Power  Manulife Financial

Almost no diversification

The 3 months correlation between Power and Manulife is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Power and Manulife Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Manulife Financial Corp and Power 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 Power are associated (or correlated) with Manulife Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Manulife Financial Corp has no effect on the direction of Power i.e., Power and Manulife Financial go up and down completely randomly.

Pair Corralation between Power and Manulife Financial

Assuming the 90 days trading horizon Power is expected to generate 1.45 times less return on investment than Manulife Financial. But when comparing it to its historical volatility, Power is 1.29 times less risky than Manulife Financial. It trades about 0.26 of its potential returns per unit of risk. Manulife Financial Corp is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  3,692  in Manulife Financial Corp on September 3, 2024 and sell it today you would earn a total of  815.00  from holding Manulife Financial Corp or generate 22.07% return on investment over 90 days.

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

Power  vs.  Manulife Financial Corp

Power

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Power are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Power displayed solid returns over the last few months and may actually be approaching a breakup point.

Manulife Financial Corp

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Manulife Financial Corp are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Manulife Financial displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Power and Manulife Financial

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

The idea behind Power and Manulife Financial Corp 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.