Correlation Between Royal Bank and Sun Life

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

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

Diversification Opportunities for Royal Bank and Sun Life

0.56

Correlation Coefficient

Royal Bank  Sun Life

Very weak diversification

The 3 months correlation between Royal and Sun is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Royal Bank of 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 Royal Bank 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 Royal Bank of 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 Royal Bank i.e., Royal Bank and Sun Life go up and down completely randomly.

Pair Corralation between Royal Bank and Sun Life

Assuming the 90 days horizon Royal Bank of is expected to under-perform the Sun Life. But the stock apears to be less risky and, when comparing its historical volatility, Royal Bank of is 1.1 times less risky than Sun Life. The stock trades about -0.05 of its potential returns per unit of risk. The Sun Life Financial is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  8,431  in Sun Life Financial on December 28, 2024 and sell it today you would lose (254.00) from holding Sun Life Financial or give up 3.01% of portfolio value over 90 days.

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

Royal Bank of  vs.  Sun Life Financial

Royal Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Royal Bank of has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Royal Bank is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

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. In spite of very healthy technical and fundamental indicators, Sun Life is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Royal Bank and Sun Life

The main advantage of trading using opposite Royal Bank and Sun Life positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Royal Bank 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 Royal Bank of 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .