Correlation Between Manulife Financial and Power Financial

Can any of the company-specific risk be diversified away by investing in both Manulife Financial and Power Financial 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 Manulife Financial and Power Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Manulife Financial Corp and Power Financial Corp, you can compare the effects of market volatilities on Manulife Financial and Power Financial 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 Manulife Financial with a short position of Power Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Manulife Financial and Power Financial.

Diversification Opportunities for Manulife Financial and Power Financial

0.74

Correlation Coefficient

Manulife Financial  Power Financial

Poor diversification

The 3 months correlation between Manulife and Power is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Manulife Financial Corp and Power Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Financial Corp and Manulife Financial 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 Manulife Financial Corp are associated (or correlated) with Power Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Financial Corp has no effect on the direction of Manulife Financial i.e., Manulife Financial and Power Financial go up and down completely randomly.

Pair Corralation between Manulife Financial and Power Financial

Assuming the 90 days trading horizon Manulife Financial Corp is expected to generate 1.0 times more return on investment than Power Financial. However, Manulife Financial Corp is 1.0 times less risky than Power Financial. It trades about 0.12 of its potential returns per unit of risk. Power Financial Corp is currently generating about 0.05 per unit of risk. If you would invest  1,525  in Manulife Financial Corp on September 12, 2024 and sell it today you would earn a total of  873.00  from holding Manulife Financial Corp or generate 57.25% return on investment over 90 days.

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

Manulife Financial Corp  vs.  Power Financial Corp

Manulife Financial Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Manulife Financial Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, Manulife Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Power Financial Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Power Financial Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Power Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Manulife Financial and Power Financial

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

The idea behind Manulife Financial Corp and Power Financial 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.