Correlation Between Sun Life and Century Pacific

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

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

Diversification Opportunities for Sun Life and Century Pacific

0.68

Correlation Coefficient

Sun Life  Century Pacific

Poor diversification

The 3 months correlation between Sun and Century is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Sun Life Financial and Century Pacific Food in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Pacific Food and Sun Life 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 Life Financial are associated (or correlated) with Century Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Pacific Food has no effect on the direction of Sun Life i.e., Sun Life and Century Pacific go up and down completely randomly.

Pair Corralation between Sun Life and Century Pacific

Assuming the 90 days trading horizon Sun Life Financial is expected to generate 2.66 times more return on investment than Century Pacific. However, Sun Life is 2.66 times more volatile than Century Pacific Food. It trades about 0.09 of its potential returns per unit of risk. Century Pacific Food is currently generating about 0.05 per unit of risk. If you would invest  296,978  in Sun Life Financial on September 26, 2024 and sell it today you would earn a total of  53,022  from holding Sun Life Financial or generate 17.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	79.37%
Values	Daily Returns

Sun Life Financial  vs.  Century Pacific Food

Sun Life Financial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sun Life Financial are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Sun Life exhibited solid returns over the last few months and may actually be approaching a breakup point.

Century Pacific Food

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Century Pacific Food are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Century Pacific is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Sun Life and Century Pacific

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

The idea behind Sun Life Financial and Century Pacific Food 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.