Correlation Between Strats SM and MFS Investment

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

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

Diversification Opportunities for Strats SM and MFS Investment

0.22

Correlation Coefficient

Strats SM  MFS Investment

Modest diversification

The 3 months correlation between Strats and MFS is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Strats SM 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 Strats SM 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 Strats SM 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 Strats SM i.e., Strats SM and MFS Investment go up and down completely randomly.

Pair Corralation between Strats SM and MFS Investment

Considering the 90-day investment horizon Strats SM Trust is expected to generate 0.62 times more return on investment than MFS Investment. However, Strats SM Trust is 1.62 times less risky than MFS Investment. It trades about 0.05 of its potential returns per unit of risk. MFS Investment Grade is currently generating about -0.03 per unit of risk. If you would invest  2,478  in Strats SM Trust on September 17, 2024 and sell it today you would earn a total of  9.00  from holding Strats SM Trust or generate 0.36% return on investment over 90 days.

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

Strats SM Trust  vs.  MFS Investment Grade

Strats SM Trust

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Strats SM Trust are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward-looking indicators, Strats SM is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

MFS Investment Grade

Risk-Adjusted Performance

0 of 100

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 Strats SM and MFS Investment

The main advantage of trading using opposite Strats SM and MFS Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Strats SM 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 Strats SM 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.