Correlation Between Mfs Global and Third Avenue

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

By analyzing existing cross correlation between Mfs Global Real and Third Avenue Real, you can compare the effects of market volatilities on Mfs Global and Third Avenue 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 Global with a short position of Third Avenue. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mfs Global and Third Avenue.

Diversification Opportunities for Mfs Global and Third Avenue

0.7

Correlation Coefficient

Mfs Global  Third Avenue

Poor diversification

The 3 months correlation between Mfs and Third is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Mfs Global Real and Third Avenue Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Third Avenue Real and Mfs Global 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 Global Real are associated (or correlated) with Third Avenue. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Third Avenue Real has no effect on the direction of Mfs Global i.e., Mfs Global and Third Avenue go up and down completely randomly.

Pair Corralation between Mfs Global and Third Avenue

Assuming the 90 days horizon Mfs Global is expected to generate 3.95 times less return on investment than Third Avenue. But when comparing it to its historical volatility, Mfs Global Real is 1.18 times less risky than Third Avenue. It trades about 0.01 of its potential returns per unit of risk. Third Avenue Real is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,293  in Third Avenue Real on December 20, 2024 and sell it today you would earn a total of  44.00  from holding Third Avenue Real or generate 1.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

Mfs Global Real  vs.  Third Avenue Real

Mfs Global Real

Risk-Adjusted Performance

Very Weak

Over the last 90 days Mfs Global Real has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Mfs Global is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Third Avenue Real

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Third Avenue Real are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Third Avenue is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Mfs Global and Third Avenue

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

The idea behind Mfs Global Real and Third Avenue Real 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.