Correlation Between MFS Investment and US Treasury

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

By analyzing existing cross correlation between MFS Investment Grade and US Treasury 12, you can compare the effects of market volatilities on MFS Investment and US Treasury 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 MFS Investment with a short position of US Treasury. Check out your portfolio center. Please also check ongoing floating volatility patterns of MFS Investment and US Treasury.

Diversification Opportunities for MFS Investment and US Treasury

0.68

Correlation Coefficient

MFS Investment  US Treasury

Poor diversification

The 3 months correlation between MFS and OBIL is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding MFS Investment Grade and US Treasury 12 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Treasury 12 and MFS Investment 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 MFS Investment Grade are associated (or correlated) with US Treasury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Treasury 12 has no effect on the direction of MFS Investment i.e., MFS Investment and US Treasury go up and down completely randomly.

Pair Corralation between MFS Investment and US Treasury

Considering the 90-day investment horizon MFS Investment Grade is expected to under-perform the US Treasury. In addition to that, MFS Investment is 9.52 times more volatile than US Treasury 12. It trades about -0.03 of its total potential returns per unit of risk. US Treasury 12 is currently generating about 0.21 per unit of volatility. If you would invest  4,980  in US Treasury 12 on August 13, 2024 and sell it today you would earn a total of  20.00  from holding US Treasury 12 or generate 0.4% return on investment over 90 days.

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

MFS Investment Grade  vs.  US Treasury 12

MFS Investment Grade

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MFS Investment Grade are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, MFS Investment is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

US Treasury 12

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in US Treasury 12 are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward indicators, US Treasury is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with MFS Investment and US Treasury

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

The idea behind MFS Investment Grade and US Treasury 12 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.