Correlation Between Sun Lif and Power Financial

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

Diversification Opportunities for Sun Lif and Power Financial

0.74

Correlation Coefficient

Sun Lif  Power Financial

Poor diversification

The 3 months correlation between Sun and Power is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Sun Lif Non 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 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 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 Sun Lif i.e., Sun Lif and Power Financial go up and down completely randomly.

Pair Corralation between Sun Lif and Power Financial

Assuming the 90 days trading horizon Sun Lif Non is expected to under-perform the Power Financial. In addition to that, Sun Lif is 1.22 times more volatile than Power Financial Corp. It trades about -0.06 of its total potential returns per unit of risk. Power Financial Corp is currently generating about -0.04 per unit of volatility. If you would invest  2,005  in Power Financial Corp on September 5, 2024 and sell it today you would lose (42.00) from holding Power Financial Corp or give up 2.09% of portfolio value over 90 days.

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

Sun Lif Non  vs.  Power Financial Corp

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.

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 recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sun Lif and Power Financial

The main advantage of trading using opposite Sun Lif and Power Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sun Lif 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 Sun Lif Non 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.