Correlation Between Philippine Business and Sun Life

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

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

Diversification Opportunities for Philippine Business and Sun Life

0.66

Correlation Coefficient

Philippine Business  Sun Life

Poor diversification

The 3 months correlation between Philippine and Sun is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Philippine Business Bank 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 Philippine Business 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 Philippine Business Bank 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 Philippine Business i.e., Philippine Business and Sun Life go up and down completely randomly.

Pair Corralation between Philippine Business and Sun Life

Assuming the 90 days trading horizon Philippine Business is expected to generate 1.98 times less return on investment than Sun Life. But when comparing it to its historical volatility, Philippine Business Bank is 2.47 times less risky than Sun Life. It trades about 0.15 of its potential returns per unit of risk. Sun Life Financial is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  292,029  in Sun Life Financial on September 13, 2024 and sell it today you would earn a total of  65,971  from holding Sun Life Financial or generate 22.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	89.66%
Values	Daily Returns

Philippine Business Bank  vs.  Sun Life Financial

Philippine Business Bank

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Philippine Business Bank are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Philippine Business exhibited solid returns over the last few months and may actually be approaching a breakup point.

Sun Life Financial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sun Life Financial are ranked lower than 9 (%) 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 Philippine Business and Sun Life

The main advantage of trading using opposite Philippine Business and Sun Life positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Philippine Business 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 Philippine Business Bank 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.

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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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.