Correlation Between Sun Life and Davis Commodities

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

Diversification Opportunities for Sun Life and Davis Commodities

0.65

Correlation Coefficient

Sun Life  Davis Commodities

Poor diversification

The 3 months correlation between Sun and Davis is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Sun Life Financial and Davis Commodities Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davis Commodities 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 Davis Commodities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davis Commodities has no effect on the direction of Sun Life i.e., Sun Life and Davis Commodities go up and down completely randomly.

Pair Corralation between Sun Life and Davis Commodities

Considering the 90-day investment horizon Sun Life Financial is expected to generate 0.35 times more return on investment than Davis Commodities. However, Sun Life Financial is 2.86 times less risky than Davis Commodities. It trades about -0.03 of its potential returns per unit of risk. Davis Commodities Limited is currently generating about -0.04 per unit of risk. If you would invest  5,809  in Sun Life Financial on December 19, 2024 and sell it today you would lose (165.00) from holding Sun Life Financial or give up 2.84% of portfolio value over 90 days.

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

Sun Life Financial  vs.  Davis Commodities Limited

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. Despite nearly stable essential indicators, Sun Life is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Davis Commodities

Risk-Adjusted Performance

Very Weak

Over the last 90 days Davis Commodities Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Sun Life and Davis Commodities

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

The idea behind Sun Life Financial and Davis Commodities Limited 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.