Correlation Between Sun Life and Manila Electric

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

Diversification Opportunities for Sun Life and Manila Electric

-0.25

Correlation Coefficient

Sun Life  Manila Electric

Very good diversification

The 3 months correlation between Sun and Manila is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Sun Life Financial and Manila Electric Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Manila Electric 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 Manila Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Manila Electric has no effect on the direction of Sun Life i.e., Sun Life and Manila Electric go up and down completely randomly.

Pair Corralation between Sun Life and Manila Electric

Assuming the 90 days trading horizon Sun Life Financial is expected to generate 1.86 times more return on investment than Manila Electric. However, Sun Life is 1.86 times more volatile than Manila Electric Co. It trades about 0.05 of its potential returns per unit of risk. Manila Electric Co is currently generating about 0.06 per unit of risk. If you would invest  242,986  in Sun Life Financial on December 2, 2024 and sell it today you would earn a total of  92,014  from holding Sun Life Financial or generate 37.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	81.94%
Values	Daily Returns

Sun Life Financial  vs.  Manila Electric Co

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.

Manila Electric

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Manila Electric Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Manila Electric 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 Manila Electric

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

The idea behind Sun Life Financial and Manila Electric Co 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.