Correlation Between MSP Recovery and Southwest Gas

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

By analyzing existing cross correlation between MSP Recovery and Southwest Gas Holdings, you can compare the effects of market volatilities on MSP Recovery and Southwest Gas 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 MSP Recovery with a short position of Southwest Gas. Check out your portfolio center. Please also check ongoing floating volatility patterns of MSP Recovery and Southwest Gas.

Diversification Opportunities for MSP Recovery and Southwest Gas

-0.64

Correlation Coefficient

MSP Recovery  Southwest Gas

Excellent diversification

The 3 months correlation between MSP and Southwest is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding MSP Recovery and Southwest Gas Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Gas Holdings and MSP Recovery 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 MSP Recovery are associated (or correlated) with Southwest Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southwest Gas Holdings has no effect on the direction of MSP Recovery i.e., MSP Recovery and Southwest Gas go up and down completely randomly.

Pair Corralation between MSP Recovery and Southwest Gas

Assuming the 90 days horizon MSP Recovery is expected to generate 9.53 times more return on investment than Southwest Gas. However, MSP Recovery is 9.53 times more volatile than Southwest Gas Holdings. It trades about 0.06 of its potential returns per unit of risk. Southwest Gas Holdings is currently generating about 0.06 per unit of risk. If you would invest  0.35  in MSP Recovery on September 13, 2024 and sell it today you would lose (0.02) from holding MSP Recovery or give up 5.71% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

MSP Recovery  vs.  Southwest Gas Holdings

MSP Recovery

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MSP Recovery are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, MSP Recovery showed solid returns over the last few months and may actually be approaching a breakup point.

Southwest Gas Holdings

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Gas Holdings are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Southwest Gas is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with MSP Recovery and Southwest Gas

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

The idea behind MSP Recovery and Southwest Gas Holdings 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.