Correlation Between Sun Lif and Imperial Oil

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

By analyzing existing cross correlation between Sun Lif Non and Imperial Oil, you can compare the effects of market volatilities on Sun Lif and Imperial Oil 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 Lif with a short position of Imperial Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sun Lif and Imperial Oil.

Diversification Opportunities for Sun Lif and Imperial Oil

-0.59

Correlation Coefficient

Sun Lif  Imperial Oil

Excellent diversification

The 3 months correlation between Sun and Imperial is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Sun Lif Non and Imperial Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Imperial Oil and Sun Lif 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 Lif Non are associated (or correlated) with Imperial Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Imperial Oil has no effect on the direction of Sun Lif i.e., Sun Lif and Imperial Oil go up and down completely randomly.

Pair Corralation between Sun Lif and Imperial Oil

Assuming the 90 days trading horizon Sun Lif Non is expected to generate 0.42 times more return on investment than Imperial Oil. However, Sun Lif Non is 2.36 times less risky than Imperial Oil. It trades about -0.02 of its potential returns per unit of risk. Imperial Oil is currently generating about -0.05 per unit of risk. If you would invest  1,912  in Sun Lif Non on September 8, 2024 and sell it today you would lose (12.00) from holding Sun Lif Non or give up 0.63% of portfolio value over 90 days.

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

Sun Lif Non  vs.  Imperial Oil

Sun Lif Non

Risk-Adjusted Performance

0 of 100

Very Weak

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

Imperial Oil

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Imperial Oil are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Imperial Oil may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Sun Lif and Imperial Oil

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

The idea behind Sun Lif Non and Imperial Oil 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.