Correlation Between Southern and Mfs Utilities

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

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

Diversification Opportunities for Southern and Mfs Utilities

0.8

Correlation Coefficient

Southern  Mfs Utilities

Very poor diversification

The 3 months correlation between Southern and MFS is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Southern Company and Mfs Utilities Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mfs Utilities and Southern 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 Southern Company are associated (or correlated) with Mfs Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mfs Utilities has no effect on the direction of Southern i.e., Southern and Mfs Utilities go up and down completely randomly.

Pair Corralation between Southern and Mfs Utilities

Allowing for the 90-day total investment horizon Southern Company is expected to generate 1.14 times more return on investment than Mfs Utilities. However, Southern is 1.14 times more volatile than Mfs Utilities Fund. It trades about 0.07 of its potential returns per unit of risk. Mfs Utilities Fund is currently generating about 0.04 per unit of risk. If you would invest  6,718  in Southern Company on August 31, 2024 and sell it today you would earn a total of  2,195  from holding Southern Company or generate 32.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.73%
Values	Daily Returns

Southern Company  vs.  Mfs Utilities Fund

Southern

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Company are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Southern is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Mfs Utilities

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mfs Utilities Fund are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Mfs Utilities may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Southern and Mfs Utilities

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

The idea behind Southern Company and Mfs Utilities Fund 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.