Correlation Between Small Cap and Mfs Emerging

Can any of the company-specific risk be diversified away by investing in both Small Cap and Mfs Emerging 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 Small Cap and Mfs Emerging into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Small Cap Value and Mfs Emerging Markets, you can compare the effects of market volatilities on Small Cap and Mfs Emerging 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 Small Cap with a short position of Mfs Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Mfs Emerging.

Diversification Opportunities for Small Cap and Mfs Emerging

0.55

Correlation Coefficient

Small Cap  Mfs Emerging

Very weak diversification

The 3 months correlation between Small and Mfs is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value and Mfs Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mfs Emerging Markets and Small Cap 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 Small Cap Value are associated (or correlated) with Mfs Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mfs Emerging Markets has no effect on the direction of Small Cap i.e., Small Cap and Mfs Emerging go up and down completely randomly.

Pair Corralation between Small Cap and Mfs Emerging

Assuming the 90 days horizon Small Cap Value is expected to generate 2.18 times more return on investment than Mfs Emerging. However, Small Cap is 2.18 times more volatile than Mfs Emerging Markets. It trades about 0.19 of its potential returns per unit of risk. Mfs Emerging Markets is currently generating about 0.12 per unit of risk. If you would invest  1,045  in Small Cap Value on October 25, 2024 and sell it today you would earn a total of  34.00  from holding Small Cap Value or generate 3.25% return on investment over 90 days.

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

Small Cap Value  vs.  Mfs Emerging Markets

Small Cap Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Cap Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Small Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Mfs Emerging Markets

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mfs Emerging Markets has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, Mfs Emerging is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Small Cap and Mfs Emerging

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

The idea behind Small Cap Value and Mfs Emerging Markets 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.