Correlation Between NYSE Composite and Mfs North

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

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

Diversification Opportunities for NYSE Composite and Mfs North

0.52

Correlation Coefficient

NYSE Composite  Mfs North

Very weak diversification

The 3 months correlation between NYSE and Mfs is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Mfs North Carolina in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mfs North Carolina and NYSE Composite 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 NYSE Composite are associated (or correlated) with Mfs North. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mfs North Carolina has no effect on the direction of NYSE Composite i.e., NYSE Composite and Mfs North go up and down completely randomly.

Pair Corralation between NYSE Composite and Mfs North

Assuming the 90 days trading horizon NYSE Composite is expected to generate 2.17 times more return on investment than Mfs North. However, NYSE Composite is 2.17 times more volatile than Mfs North Carolina. It trades about -0.03 of its potential returns per unit of risk. Mfs North Carolina is currently generating about -0.12 per unit of risk. If you would invest  1,951,644  in NYSE Composite on September 30, 2024 and sell it today you would lose (27,796) from holding NYSE Composite or give up 1.42% of portfolio value over 90 days.

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

NYSE Composite  vs.  Mfs North Carolina

Pair Trading with NYSE Composite and Mfs North

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

The idea behind NYSE Composite and Mfs North Carolina 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.