Correlation Between DTF Tax and MFS Investment

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

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

Diversification Opportunities for DTF Tax and MFS Investment

0.57

Correlation Coefficient

DTF Tax  MFS Investment

Very weak diversification

The 3 months correlation between DTF and MFS is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding DTF Tax Free and MFS Investment Grade in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MFS Investment Grade and DTF Tax 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 DTF Tax Free are associated (or correlated) with MFS Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MFS Investment Grade has no effect on the direction of DTF Tax i.e., DTF Tax and MFS Investment go up and down completely randomly.

Pair Corralation between DTF Tax and MFS Investment

Considering the 90-day investment horizon DTF Tax Free is expected to generate 0.79 times more return on investment than MFS Investment. However, DTF Tax Free is 1.27 times less risky than MFS Investment. It trades about 0.06 of its potential returns per unit of risk. MFS Investment Grade is currently generating about -0.03 per unit of risk. If you would invest  1,117  in DTF Tax Free on November 28, 2024 and sell it today you would earn a total of  18.00  from holding DTF Tax Free or generate 1.61% return on investment over 90 days.

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

DTF Tax Free  vs.  MFS Investment Grade

DTF Tax Free

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in DTF Tax Free are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, DTF Tax is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

MFS Investment Grade

Risk-Adjusted Performance

Very Weak

Over the last 90 days MFS Investment Grade has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Pair Trading with DTF Tax and MFS Investment

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

The idea behind DTF Tax Free and MFS Investment Grade 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.