Correlation Between Sun Life and Megawide Construction

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

Diversification Opportunities for Sun Life and Megawide Construction

0.64

Correlation Coefficient

Sun Life  Megawide Construction

Poor diversification

The 3 months correlation between Sun and Megawide is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Sun Life Financial and Megawide Construction Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Megawide Construction 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 Megawide Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Megawide Construction has no effect on the direction of Sun Life i.e., Sun Life and Megawide Construction go up and down completely randomly.

Pair Corralation between Sun Life and Megawide Construction

Assuming the 90 days trading horizon Sun Life Financial is expected to generate 1.08 times more return on investment than Megawide Construction. However, Sun Life is 1.08 times more volatile than Megawide Construction Corp. It trades about 0.04 of its potential returns per unit of risk. Megawide Construction Corp is currently generating about 0.03 per unit of risk. If you would invest  227,928  in Sun Life Financial on September 23, 2024 and sell it today you would earn a total of  72,672  from holding Sun Life Financial or generate 31.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	54.26%
Values	Daily Returns

Sun Life Financial  vs.  Megawide Construction Corp

Sun Life Financial

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sun Life Financial are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Sun Life may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Megawide Construction

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Megawide Construction Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Megawide Construction may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Sun Life and Megawide Construction

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

The idea behind Sun Life Financial and Megawide Construction 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.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..