Correlation Between Sprott Focus and MFS Investment

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

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

Diversification Opportunities for Sprott Focus and MFS Investment

0.75

Correlation Coefficient

Sprott Focus  MFS Investment

Poor diversification

The 3 months correlation between Sprott and MFS is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Sprott Focus Trust and MFS Investment Grade in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MFS Investment Grade and Sprott Focus 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 Sprott Focus Trust are associated (or correlated) with MFS Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MFS Investment Grade has no effect on the direction of Sprott Focus i.e., Sprott Focus and MFS Investment go up and down completely randomly.

Pair Corralation between Sprott Focus and MFS Investment

Given the investment horizon of 90 days Sprott Focus Trust is expected to under-perform the MFS Investment. In addition to that, Sprott Focus is 1.44 times more volatile than MFS Investment Grade. It trades about -0.1 of its total potential returns per unit of risk. MFS Investment Grade is currently generating about -0.01 per unit of volatility. If you would invest  816.00  in MFS Investment Grade on November 28, 2024 and sell it today you would lose (3.00) from holding MFS Investment Grade or give up 0.37% of portfolio value over 90 days.

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

Sprott Focus Trust  vs.  MFS Investment Grade

Sprott Focus Trust

Risk-Adjusted Performance

Very Weak

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

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.

Pair Trading with Sprott Focus and MFS Investment

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

The idea behind Sprott Focus Trust and MFS Investment Grade 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.