Correlation Between Small Cap and Mfs Research

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

By analyzing existing cross correlation between Small Cap Stock and Mfs Research Fund, you can compare the effects of market volatilities on Small Cap and Mfs Research 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 Small Cap with a short position of Mfs Research. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Mfs Research.

Diversification Opportunities for Small Cap and Mfs Research

0.88

Correlation Coefficient

Small Cap  Mfs Research

Very poor diversification

The 3 months correlation between Small and Mfs is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Mfs Research Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mfs Research and Small Cap 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 Small Cap Stock are associated (or correlated) with Mfs Research. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mfs Research has no effect on the direction of Small Cap i.e., Small Cap and Mfs Research go up and down completely randomly.

Pair Corralation between Small Cap and Mfs Research

Assuming the 90 days horizon Small Cap Stock is expected to generate 2.4 times more return on investment than Mfs Research. However, Small Cap is 2.4 times more volatile than Mfs Research Fund. It trades about 0.26 of its potential returns per unit of risk. Mfs Research Fund is currently generating about 0.35 per unit of risk. If you would invest  1,401  in Small Cap Stock on September 5, 2024 and sell it today you would earn a total of  128.00  from holding Small Cap Stock or generate 9.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

Small Cap Stock  vs.  Mfs Research Fund

Small Cap Stock

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Stock are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Small Cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Mfs Research

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mfs Research Fund are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward-looking signals, Mfs Research may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Small Cap and Mfs Research

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

The idea behind Small Cap Stock and Mfs Research Fund 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.