Correlation Between MFS High and Invesco Municipal

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

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

Diversification Opportunities for MFS High and Invesco Municipal

0.71

Correlation Coefficient

MFS High  Invesco Municipal

Poor diversification

The 3 months correlation between MFS and Invesco is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding MFS High Yield and Invesco Municipal Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Municipal Income and MFS High 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 High Yield are associated (or correlated) with Invesco Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Municipal Income has no effect on the direction of MFS High i.e., MFS High and Invesco Municipal go up and down completely randomly.

Pair Corralation between MFS High and Invesco Municipal

Considering the 90-day investment horizon MFS High is expected to generate 3.2 times less return on investment than Invesco Municipal. But when comparing it to its historical volatility, MFS High Yield is 1.46 times less risky than Invesco Municipal. It trades about 0.04 of its potential returns per unit of risk. Invesco Municipal Income is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  580.00  in Invesco Municipal Income on December 27, 2024 and sell it today you would earn a total of  22.00  from holding Invesco Municipal Income or generate 3.79% return on investment over 90 days.

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

MFS High Yield  vs.  Invesco Municipal Income

MFS High Yield

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MFS High Yield are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable primary indicators, MFS High is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Invesco Municipal Income

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Municipal Income are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong forward indicators, Invesco Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with MFS High and Invesco Municipal

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

The idea behind MFS High Yield and Invesco Municipal 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.

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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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.