Correlation Between Flow Capital and MFS Government

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

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

Diversification Opportunities for Flow Capital and MFS Government

-0.16

Correlation Coefficient

Flow Capital  MFS Government

Good diversification

The 3 months correlation between Flow and MFS is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Flow Capital Corp 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 Flow Capital 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 Flow Capital Corp 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 Flow Capital i.e., Flow Capital and MFS Government go up and down completely randomly.

Pair Corralation between Flow Capital and MFS Government

Assuming the 90 days horizon Flow Capital Corp is expected to generate 0.95 times more return on investment than MFS Government. However, Flow Capital Corp is 1.05 times less risky than MFS Government. It trades about 0.22 of its potential returns per unit of risk. MFS Government Markets is currently generating about -0.13 per unit of risk. If you would invest  37.00  in Flow Capital Corp on January 30, 2024 and sell it today you would earn a total of  1.00  from holding Flow Capital Corp or generate 2.7% return on investment over 90 days.

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

Flow Capital Corp  vs.  MFS Government Markets

Flow Capital Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Flow Capital Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, Flow Capital is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

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 Flow Capital and MFS Government

The main advantage of trading using opposite Flow Capital and MFS Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Flow Capital 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 Flow Capital Corp 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.