Correlation Between Sp Smallcap and Mfs Modity

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

By analyzing existing cross correlation between Sp Smallcap 600 and Mfs Modity Strategy, you can compare the effects of market volatilities on Sp Smallcap and Mfs Modity 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 Sp Smallcap with a short position of Mfs Modity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sp Smallcap and Mfs Modity.

Diversification Opportunities for Sp Smallcap and Mfs Modity

-0.14

Correlation Coefficient

Sp Smallcap  Mfs Modity

Good diversification

The 3 months correlation between RYSVX and Mfs is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Sp Smallcap 600 and Mfs Modity Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mfs Modity Strategy and Sp Smallcap 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 Sp Smallcap 600 are associated (or correlated) with Mfs Modity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mfs Modity Strategy has no effect on the direction of Sp Smallcap i.e., Sp Smallcap and Mfs Modity go up and down completely randomly.

Pair Corralation between Sp Smallcap and Mfs Modity

Assuming the 90 days horizon Sp Smallcap 600 is expected to generate 1.73 times more return on investment than Mfs Modity. However, Sp Smallcap is 1.73 times more volatile than Mfs Modity Strategy. It trades about 0.09 of its potential returns per unit of risk. Mfs Modity Strategy is currently generating about 0.05 per unit of risk. If you would invest  20,231  in Sp Smallcap 600 on September 18, 2024 and sell it today you would earn a total of  1,564  from holding Sp Smallcap 600 or generate 7.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Sp Smallcap 600  vs.  Mfs Modity Strategy

Sp Smallcap 600

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sp Smallcap 600 are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Sp Smallcap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Mfs Modity Strategy

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mfs Modity Strategy are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Mfs Modity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sp Smallcap and Mfs Modity

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

The idea behind Sp Smallcap 600 and Mfs Modity Strategy 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.

Check out your portfolio center.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.