Correlation Between Main Street and MFS High

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

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

Diversification Opportunities for Main Street and MFS High

0.1

Correlation Coefficient

Main Street  MFS High

Average diversification

The 3 months correlation between Main and MFS is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Main Street Capital 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 Main Street 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 Main Street Capital 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 Main Street i.e., Main Street and MFS High go up and down completely randomly.

Pair Corralation between Main Street and MFS High

Given the investment horizon of 90 days Main Street Capital is expected to generate 0.81 times more return on investment than MFS High. However, Main Street Capital is 1.23 times less risky than MFS High. It trades about 0.16 of its potential returns per unit of risk. MFS High Income is currently generating about 0.04 per unit of risk. If you would invest  3,628  in Main Street Capital on February 22, 2024 and sell it today you would earn a total of  1,272  from holding Main Street Capital or generate 35.06% return on investment over 90 days.

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

Main Street Capital  vs.  MFS High Income

Main Street Capital

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Main Street Capital are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting forward indicators, Main Street may actually be approaching a critical reversion point that can send shares even higher in June 2024.

MFS High Income

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MFS High Income are ranked lower than 3 (%) 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 Main Street and MFS High

The main advantage of trading using opposite Main Street and MFS High positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Main Street 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 Main Street Capital 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.

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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.