Correlation Between MFS Investment and DWS Municipal

Can any of the company-specific risk be diversified away by investing in both MFS Investment and DWS 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 Investment and DWS Municipal 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 DWS Municipal Income, you can compare the effects of market volatilities on MFS Investment and DWS 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 Investment with a short position of DWS Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of MFS Investment and DWS Municipal.

Diversification Opportunities for MFS Investment and DWS Municipal

0.84

Correlation Coefficient

MFS Investment  DWS Municipal

Very poor diversification

The 3 months correlation between MFS and DWS is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding MFS Investment Grade and DWS Municipal Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DWS Municipal Income 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 DWS Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DWS Municipal Income has no effect on the direction of MFS Investment i.e., MFS Investment and DWS Municipal go up and down completely randomly.

Pair Corralation between MFS Investment and DWS Municipal

Considering the 90-day investment horizon MFS Investment Grade is expected to generate 1.02 times more return on investment than DWS Municipal. However, MFS Investment is 1.02 times more volatile than DWS Municipal Income. It trades about 0.07 of its potential returns per unit of risk. DWS Municipal Income is currently generating about 0.05 per unit of risk. If you would invest  782.00  in MFS Investment Grade on December 26, 2024 and sell it today you would earn a total of  15.00  from holding MFS Investment Grade or generate 1.92% return on investment over 90 days.

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

MFS Investment Grade  vs.  DWS Municipal Income

MFS Investment Grade

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MFS Investment Grade are ranked lower than 5 (%) 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.

DWS Municipal Income

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in DWS Municipal Income are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, DWS Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with MFS Investment and DWS Municipal

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

The idea behind MFS Investment Grade and DWS 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.