Correlation Between MFF Capital and Xero

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

By analyzing existing cross correlation between MFF Capital Investments and Xero, you can compare the effects of market volatilities on MFF Capital and Xero 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 MFF Capital with a short position of Xero. Check out your portfolio center. Please also check ongoing floating volatility patterns of MFF Capital and Xero.

Diversification Opportunities for MFF Capital and Xero

0.65

Correlation Coefficient

MFF Capital  Xero

Poor diversification

The 3 months correlation between MFF and Xero is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding MFF Capital Investments and Xero in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xero and MFF Capital 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 MFF Capital Investments are associated (or correlated) with Xero. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xero has no effect on the direction of MFF Capital i.e., MFF Capital and Xero go up and down completely randomly.

Pair Corralation between MFF Capital and Xero

Assuming the 90 days trading horizon MFF Capital is expected to generate 1.15 times less return on investment than Xero. But when comparing it to its historical volatility, MFF Capital Investments is 1.95 times less risky than Xero. It trades about 0.14 of its potential returns per unit of risk. Xero is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  8,199  in Xero on October 25, 2024 and sell it today you would earn a total of  8,806  from holding Xero or generate 107.4% return on investment over 90 days.

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

MFF Capital Investments  vs.  Xero

MFF Capital Investments

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MFF Capital Investments are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, MFF Capital unveiled solid returns over the last few months and may actually be approaching a breakup point.

Xero

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xero are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Xero unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MFF Capital and Xero

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

The idea behind MFF Capital Investments and Xero 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.

Check out your portfolio center.

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 Stocks Directory module to find actively traded stocks across global markets.