Correlation Between ESH Acquisition and MFS High

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

By analyzing existing cross correlation between ESH Acquisition Corp and MFS High Income, you can compare the effects of market volatilities on ESH Acquisition and MFS High 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 ESH Acquisition with a short position of MFS High. Check out your portfolio center. Please also check ongoing floating volatility patterns of ESH Acquisition and MFS High.

Diversification Opportunities for ESH Acquisition and MFS High

-0.49

Correlation Coefficient

ESH Acquisition  MFS High

Very good diversification

The 3 months correlation between ESH and MFS is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding ESH Acquisition Corp and MFS High Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MFS High Income and ESH Acquisition 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 ESH Acquisition Corp are associated (or correlated) with MFS High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MFS High Income has no effect on the direction of ESH Acquisition i.e., ESH Acquisition and MFS High go up and down completely randomly.

Pair Corralation between ESH Acquisition and MFS High

Given the investment horizon of 90 days ESH Acquisition is expected to generate 2.31 times less return on investment than MFS High. But when comparing it to its historical volatility, ESH Acquisition Corp is 4.49 times less risky than MFS High. It trades about 0.08 of its potential returns per unit of risk. MFS High Income is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  331.00  in MFS High Income on September 2, 2024 and sell it today you would earn a total of  57.00  from holding MFS High Income or generate 17.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	74.6%
Values	Daily Returns

ESH Acquisition Corp  vs.  MFS High Income

ESH Acquisition Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ESH Acquisition Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical indicators, ESH Acquisition is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

MFS High Income

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in MFS High Income are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, MFS High is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with ESH Acquisition and MFS High

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

The idea behind ESH Acquisition Corp and MFS High Income 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.