Correlation Between MFS Government and First Trust

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

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

Diversification Opportunities for MFS Government and First Trust

-0.42

Correlation Coefficient

MFS Government  First Trust

Very good diversification

The 3 months correlation between MFS and First is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding MFS Government Markets and First Trust Specialty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Specialty and MFS Government 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 MFS Government Markets are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Specialty has no effect on the direction of MFS Government i.e., MFS Government and First Trust go up and down completely randomly.

Pair Corralation between MFS Government and First Trust

Considering the 90-day investment horizon MFS Government Markets is expected to under-perform the First Trust. In addition to that, MFS Government is 1.31 times more volatile than First Trust Specialty. It trades about -0.04 of its total potential returns per unit of risk. First Trust Specialty is currently generating about 0.67 per unit of volatility. If you would invest  396.00  in First Trust Specialty on September 3, 2024 and sell it today you would earn a total of  32.00  from holding First Trust Specialty or generate 8.08% return on investment over 90 days.

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

MFS Government Markets  vs.  First Trust Specialty

MFS Government Markets

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MFS Government Markets has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, MFS Government is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

First Trust Specialty

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Specialty are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat inconsistent technical and fundamental indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with MFS Government and First Trust

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

The idea behind MFS Government Markets and First Trust Specialty 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 Valuation module to check real value of public entities based on technical and fundamental data.