Correlation Between Metro Retail and Sun Life

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

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

Diversification Opportunities for Metro Retail and Sun Life

0.2

Correlation Coefficient

Metro Retail  Sun Life

Modest diversification

The 3 months correlation between Metro and Sun is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Metro Retail Stores and Sun Life Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sun Life Financial and Metro Retail 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 Metro Retail Stores are associated (or correlated) with Sun Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sun Life Financial has no effect on the direction of Metro Retail i.e., Metro Retail and Sun Life go up and down completely randomly.

Pair Corralation between Metro Retail and Sun Life

Assuming the 90 days trading horizon Metro Retail is expected to generate 98.55 times less return on investment than Sun Life. But when comparing it to its historical volatility, Metro Retail Stores is 3.33 times less risky than Sun Life. It trades about 0.01 of its potential returns per unit of risk. Sun Life Financial is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  306,878  in Sun Life Financial on September 14, 2024 and sell it today you would earn a total of  48,122  from holding Sun Life Financial or generate 15.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	73.91%
Values	Daily Returns

Metro Retail Stores  vs.  Sun Life Financial

Metro Retail Stores

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Metro Retail Stores are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Metro Retail is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Sun Life Financial

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sun Life Financial are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Sun Life exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Metro Retail and Sun Life

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

The idea behind Metro Retail Stores and Sun Life Financial 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.