Correlation Between MFS Investment and Adams Natural

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

By analyzing existing cross correlation between MFS Investment Grade and Adams Natural Resources, you can compare the effects of market volatilities on MFS Investment and Adams Natural 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 Investment with a short position of Adams Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of MFS Investment and Adams Natural.

Diversification Opportunities for MFS Investment and Adams Natural

0.33

Correlation Coefficient

MFS Investment  Adams Natural

Weak diversification

The 3 months correlation between MFS and Adams is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding MFS Investment Grade and Adams Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adams Natural Resources and MFS Investment 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 Investment Grade are associated (or correlated) with Adams Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adams Natural Resources has no effect on the direction of MFS Investment i.e., MFS Investment and Adams Natural go up and down completely randomly.

Pair Corralation between MFS Investment and Adams Natural

Considering the 90-day investment horizon MFS Investment Grade is expected to generate 0.76 times more return on investment than Adams Natural. However, MFS Investment Grade is 1.32 times less risky than Adams Natural. It trades about -0.2 of its potential returns per unit of risk. Adams Natural Resources is currently generating about -0.65 per unit of risk. If you would invest  810.00  in MFS Investment Grade on September 24, 2024 and sell it today you would lose (22.00) from holding MFS Investment Grade or give up 2.72% of portfolio value over 90 days.

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

MFS Investment Grade  vs.  Adams Natural Resources

MFS Investment Grade

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MFS Investment Grade has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, MFS Investment is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Adams Natural Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Adams Natural Resources has generated negative risk-adjusted returns adding no value to fund investors. In spite of very healthy technical and fundamental indicators, Adams Natural is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with MFS Investment and Adams Natural

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

The idea behind MFS Investment Grade and Adams Natural Resources 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.