Correlation Between Northern Lights and MFS Active

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

By analyzing existing cross correlation between Northern Lights and MFS Active Exchange, you can compare the effects of market volatilities on Northern Lights and MFS Active 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 Northern Lights with a short position of MFS Active. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Lights and MFS Active.

Diversification Opportunities for Northern Lights and MFS Active

-0.2

Correlation Coefficient

Northern Lights  MFS Active

Good diversification

The 3 months correlation between Northern and MFS is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and MFS Active Exchange in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MFS Active Exchange and Northern Lights 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 Northern Lights are associated (or correlated) with MFS Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MFS Active Exchange has no effect on the direction of Northern Lights i.e., Northern Lights and MFS Active go up and down completely randomly.

Pair Corralation between Northern Lights and MFS Active

Given the investment horizon of 90 days Northern Lights is expected to generate 1.21 times more return on investment than MFS Active. However, Northern Lights is 1.21 times more volatile than MFS Active Exchange. It trades about -0.22 of its potential returns per unit of risk. MFS Active Exchange is currently generating about -0.5 per unit of risk. If you would invest  2,560  in Northern Lights on October 11, 2024 and sell it today you would lose (34.00) from holding Northern Lights or give up 1.33% of portfolio value over 90 days.

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

Northern Lights  vs.  MFS Active Exchange

Northern Lights

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northern Lights has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking signals, Northern Lights is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

MFS Active Exchange

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MFS Active Exchange are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal basic indicators, MFS Active sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Northern Lights and MFS Active

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

The idea behind Northern Lights and MFS Active Exchange 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.