Correlation Between First Trust and MFS High

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

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

Diversification Opportunities for First Trust and MFS High

0.49

Correlation Coefficient

First Trust  MFS High

Very weak diversification

The 3 months correlation between First and MFS is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding First Trust High and MFS High Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MFS High Yield and First Trust 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 First Trust High 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 Yield has no effect on the direction of First Trust i.e., First Trust and MFS High go up and down completely randomly.

Pair Corralation between First Trust and MFS High

Given the investment horizon of 90 days First Trust High is expected to generate 0.64 times more return on investment than MFS High. However, First Trust High is 1.55 times less risky than MFS High. It trades about -0.16 of its potential returns per unit of risk. MFS High Yield is currently generating about -0.19 per unit of risk. If you would invest  1,464  in First Trust High on December 27, 2024 and sell it today you would lose (15.00) from holding First Trust High or give up 1.02% of portfolio value over 90 days.

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

First Trust High  vs.  MFS High Yield

First Trust High

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust High are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical indicators, First Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

MFS High Yield

Risk-Adjusted Performance

Insignificant

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

Pair Trading with First Trust and MFS High

The main advantage of trading using opposite First Trust and MFS High positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust 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 First Trust High and MFS High Yield 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.