Correlation Between Manulife Financial and Megawide Construction

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

Diversification Opportunities for Manulife Financial and Megawide Construction

0.52

Correlation Coefficient

Manulife Financial  Megawide Construction

Very weak diversification

The 3 months correlation between Manulife and Megawide is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Manulife Financial Corp and Megawide Construction Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Megawide Construction 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 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 Manulife Financial i.e., Manulife Financial and Megawide Construction go up and down completely randomly.

Pair Corralation between Manulife Financial and Megawide Construction

Assuming the 90 days trading horizon Manulife Financial Corp is expected to generate 3.0 times more return on investment than Megawide Construction. However, Manulife Financial is 3.0 times more volatile than Megawide Construction Corp. It trades about 0.16 of its potential returns per unit of risk. Megawide Construction Corp is currently generating about 0.17 per unit of risk. If you would invest  148,498  in Manulife Financial Corp on September 14, 2024 and sell it today you would earn a total of  51,502  from holding Manulife Financial Corp or generate 34.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	66.67%
Values	Daily Returns

Manulife Financial Corp  vs.  Megawide Construction Corp

Manulife Financial Corp

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Manulife Financial Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather unsteady technical and fundamental indicators, Manulife Financial exhibited solid returns over the last few months and may actually be approaching a breakup point.

Megawide Construction

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Megawide Construction Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Megawide Construction reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Manulife Financial and Megawide Construction

The main advantage of trading using opposite Manulife Financial and Megawide Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Manulife Financial 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 Manulife Financial Corp 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.