Correlation Between MFS High and First Trust

Can any of the company-specific risk be diversified away by investing in both MFS High 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 High 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 High Yield and First Trust Specialty, you can compare the effects of market volatilities on MFS High 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 High with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of MFS High and First Trust.

Diversification Opportunities for MFS High and First Trust

0.22

Correlation Coefficient

MFS High  First Trust

Modest diversification

The 3 months correlation between MFS and First is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding MFS High Yield 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 High 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 High Yield 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 High i.e., MFS High and First Trust go up and down completely randomly.

Pair Corralation between MFS High and First Trust

Considering the 90-day investment horizon MFS High is expected to generate 5.12 times less return on investment than First Trust. But when comparing it to its historical volatility, MFS High Yield is 2.14 times less risky than First Trust. It trades about 0.07 of its potential returns per unit of risk. First Trust Specialty is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  374.00  in First Trust Specialty on September 5, 2024 and sell it today you would earn a total of  51.00  from holding First Trust Specialty or generate 13.64% return on investment over 90 days.

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

MFS High Yield  vs.  First Trust Specialty

MFS High Yield

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MFS High Yield are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable primary indicators, MFS High is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

First Trust Specialty

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Specialty are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat unsteady technical and fundamental indicators, First Trust sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MFS High and First Trust

The main advantage of trading using opposite MFS High and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MFS High 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 High Yield 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.