Correlation Between Federated Premier and MFS High

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

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

Diversification Opportunities for Federated Premier and MFS High

0.88

Correlation Coefficient

Federated Premier  MFS High

Very poor diversification

The 3 months correlation between Federated and MFS is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Federated Premier Municipal and MFS High Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MFS High Income and Federated Premier 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 Federated Premier Municipal are associated (or correlated) with MFS High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MFS High Income has no effect on the direction of Federated Premier i.e., Federated Premier and MFS High go up and down completely randomly.

Pair Corralation between Federated Premier and MFS High

Considering the 90-day investment horizon Federated Premier is expected to generate 4.31 times less return on investment than MFS High. In addition to that, Federated Premier is 1.13 times more volatile than MFS High Income. It trades about 0.02 of its total potential returns per unit of risk. MFS High Income is currently generating about 0.1 per unit of volatility. If you would invest  377.00  in MFS High Income on August 31, 2024 and sell it today you would earn a total of  5.00  from holding MFS High Income or generate 1.33% return on investment over 90 days.

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

Federated Premier Municipal  vs.  MFS High Income

Federated Premier

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Federated Premier Municipal has generated negative risk-adjusted returns adding no value to fund investors. In spite of very healthy primary indicators, Federated Premier is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

MFS High Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MFS High Income has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, MFS High is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Federated Premier and MFS High

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

The idea behind Federated Premier Municipal and MFS High Income 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.