Correlation Between MFS Investment and IShares Edge

Can any of the company-specific risk be diversified away by investing in both MFS Investment and IShares Edge 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 MFS Investment and IShares Edge into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between MFS Investment Grade and iShares Edge High, you can compare the effects of market volatilities on MFS Investment and IShares Edge 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 MFS Investment with a short position of IShares Edge. Check out your portfolio center. Please also check ongoing floating volatility patterns of MFS Investment and IShares Edge.

Diversification Opportunities for MFS Investment and IShares Edge

0.61

Correlation Coefficient

MFS Investment  IShares Edge

Poor diversification

The 3 months correlation between MFS and IShares is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding MFS Investment Grade and iShares Edge High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Edge High and MFS Investment 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 MFS Investment Grade are associated (or correlated) with IShares Edge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Edge High has no effect on the direction of MFS Investment i.e., MFS Investment and IShares Edge go up and down completely randomly.

Pair Corralation between MFS Investment and IShares Edge

Considering the 90-day investment horizon MFS Investment Grade is expected to generate 1.86 times more return on investment than IShares Edge. However, MFS Investment is 1.86 times more volatile than iShares Edge High. It trades about 0.1 of its potential returns per unit of risk. iShares Edge High is currently generating about 0.15 per unit of risk. If you would invest  724.00  in MFS Investment Grade on December 2, 2024 and sell it today you would earn a total of  89.00  from holding MFS Investment Grade or generate 12.29% return on investment over 90 days.

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

MFS Investment Grade  vs.  iShares Edge High

MFS Investment Grade

Risk-Adjusted Performance

Very Weak

Over the last 90 days MFS Investment Grade has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, MFS Investment is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

iShares Edge High

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Edge High are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, IShares Edge is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with MFS Investment and IShares Edge

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

The idea behind MFS Investment Grade and iShares Edge High 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 Valuation module to check real value of public entities based on technical and fundamental data.