Correlation Between Energy Basic and Mfs Prudent

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

By analyzing existing cross correlation between Energy Basic Materials and Mfs Prudent Investor, you can compare the effects of market volatilities on Energy Basic and Mfs Prudent 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 Energy Basic with a short position of Mfs Prudent. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Basic and Mfs Prudent.

Diversification Opportunities for Energy Basic and Mfs Prudent

0.67

Correlation Coefficient

Energy Basic  Mfs Prudent

Poor diversification

The 3 months correlation between Energy and Mfs is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Energy Basic Materials and Mfs Prudent Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mfs Prudent Investor and Energy Basic 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 Energy Basic Materials are associated (or correlated) with Mfs Prudent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mfs Prudent Investor has no effect on the direction of Energy Basic i.e., Energy Basic and Mfs Prudent go up and down completely randomly.

Pair Corralation between Energy Basic and Mfs Prudent

Assuming the 90 days horizon Energy Basic Materials is expected to under-perform the Mfs Prudent. In addition to that, Energy Basic is 1.97 times more volatile than Mfs Prudent Investor. It trades about -0.08 of its total potential returns per unit of risk. Mfs Prudent Investor is currently generating about 0.0 per unit of volatility. If you would invest  1,168  in Mfs Prudent Investor on September 30, 2024 and sell it today you would lose (4.00) from holding Mfs Prudent Investor or give up 0.34% of portfolio value over 90 days.

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

Energy Basic Materials  vs.  Mfs Prudent Investor

Energy Basic Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Energy Basic Materials has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Mfs Prudent Investor

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Energy Basic and Mfs Prudent

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

The idea behind Energy Basic Materials and Mfs Prudent Investor 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.