Correlation Between Federated Premier and MFS Government

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

By analyzing existing cross correlation between Federated Premier Municipal and MFS Government Markets, you can compare the effects of market volatilities on Federated Premier and MFS Government 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 Federated Premier with a short position of MFS Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federated Premier and MFS Government.

Diversification Opportunities for Federated Premier and MFS Government

0.87

Correlation Coefficient

Federated Premier  MFS Government

Very poor diversification

The 3 months correlation between Federated and MFS is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Federated Premier Municipal and MFS Government Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MFS Government Markets and Federated Premier 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 Federated Premier Municipal are associated (or correlated) with MFS Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MFS Government Markets has no effect on the direction of Federated Premier i.e., Federated Premier and MFS Government go up and down completely randomly.

Pair Corralation between Federated Premier and MFS Government

Considering the 90-day investment horizon Federated Premier Municipal is expected to under-perform the MFS Government. But the fund apears to be less risky and, when comparing its historical volatility, Federated Premier Municipal is 1.49 times less risky than MFS Government. The fund trades about -0.15 of its potential returns per unit of risk. The MFS Government Markets is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  310.00  in MFS Government Markets on September 25, 2024 and sell it today you would lose (1.00) from holding MFS Government Markets or give up 0.32% of portfolio value over 90 days.

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

Federated Premier Municipal  vs.  MFS Government Markets

Federated Premier

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Federated Premier Municipal has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest unfluctuating performance, the Fund's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the fund investors.

MFS Government Markets

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MFS Government Markets has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, MFS Government is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Federated Premier and MFS Government

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

The idea behind Federated Premier Municipal and MFS Government Markets 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.