Correlation Between Sun Life and NexGen Energy

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

Diversification Opportunities for Sun Life and NexGen Energy

-0.26

Correlation Coefficient

Sun Life  NexGen Energy

Very good diversification

The 3 months correlation between Sun and NexGen is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Sun Life Financial and NexGen Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NexGen Energy 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 NexGen Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NexGen Energy has no effect on the direction of Sun Life i.e., Sun Life and NexGen Energy go up and down completely randomly.

Pair Corralation between Sun Life and NexGen Energy

Assuming the 90 days trading horizon Sun Life Financial is expected to generate 0.21 times more return on investment than NexGen Energy. However, Sun Life Financial is 4.81 times less risky than NexGen Energy. It trades about -0.13 of its potential returns per unit of risk. NexGen Energy is currently generating about -0.19 per unit of risk. If you would invest  2,070  in Sun Life Financial on December 29, 2024 and sell it today you would lose (41.00) from holding Sun Life Financial or give up 1.98% of portfolio value over 90 days.

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

Sun Life Financial  vs.  NexGen Energy

Sun Life Financial

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sun Life Financial are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Sun Life is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

NexGen Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days NexGen Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Sun Life and NexGen Energy

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

The idea behind Sun Life Financial and NexGen Energy 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.