Correlation Between Sun Life and LFM Properties

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

Diversification Opportunities for Sun Life and LFM Properties

-0.11

Correlation Coefficient

Sun Life  LFM Properties

Good diversification

The 3 months correlation between Sun and LFM is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Sun Life Financial and LFM Properties Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LFM Properties Corp 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 LFM Properties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LFM Properties Corp has no effect on the direction of Sun Life i.e., Sun Life and LFM Properties go up and down completely randomly.

Pair Corralation between Sun Life and LFM Properties

Assuming the 90 days trading horizon Sun Life Financial is expected to generate 0.34 times more return on investment than LFM Properties. However, Sun Life Financial is 2.93 times less risky than LFM Properties. It trades about 0.04 of its potential returns per unit of risk. LFM Properties Corp is currently generating about 0.01 per unit of risk. If you would invest  231,572  in Sun Life Financial on December 4, 2024 and sell it today you would earn a total of  78,628  from holding Sun Life Financial or generate 33.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	65.72%
Values	Daily Returns

Sun Life Financial  vs.  LFM Properties Corp

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 rather sound technical and fundamental indicators, Sun Life is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

LFM Properties Corp

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Sun Life and LFM Properties

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

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