Correlation Between Sun Life and China Water

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

Diversification Opportunities for Sun Life and China Water

-0.85

Correlation Coefficient

Sun Life  China Water

Pay attention - limited upside

The 3 months correlation between Sun and China is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding Sun Life Financial and China Water Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Water Industry 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 China Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Water Industry has no effect on the direction of Sun Life i.e., Sun Life and China Water go up and down completely randomly.

Pair Corralation between Sun Life and China Water

Assuming the 90 days horizon Sun Life Financial is expected to generate 0.16 times more return on investment than China Water. However, Sun Life Financial is 6.16 times less risky than China Water. It trades about 0.17 of its potential returns per unit of risk. China Water Industry is currently generating about -0.14 per unit of risk. If you would invest  5,027  in Sun Life Financial on September 24, 2024 and sell it today you would earn a total of  623.00  from holding Sun Life Financial or generate 12.39% return on investment over 90 days.

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

Sun Life Financial  vs.  China Water Industry

Sun Life Financial

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sun Life Financial are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sun Life may actually be approaching a critical reversion point that can send shares even higher in January 2025.

China Water Industry

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Water Industry has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Sun Life and China Water

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

The idea behind Sun Life Financial and China Water Industry 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.