Correlation Between First Trust and MFS Municipal

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

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

Diversification Opportunities for First Trust and MFS Municipal

-0.41

Correlation Coefficient

First Trust  MFS Municipal

Very good diversification

The 3 months correlation between First and MFS is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding First Trust New and MFS Municipal Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MFS Municipal Income and First Trust 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 First Trust New are associated (or correlated) with MFS Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MFS Municipal Income has no effect on the direction of First Trust i.e., First Trust and MFS Municipal go up and down completely randomly.

Pair Corralation between First Trust and MFS Municipal

Considering the 90-day investment horizon First Trust New is expected to generate 1.29 times more return on investment than MFS Municipal. However, First Trust is 1.29 times more volatile than MFS Municipal Income. It trades about 0.06 of its potential returns per unit of risk. MFS Municipal Income is currently generating about 0.03 per unit of risk. If you would invest  581.00  in First Trust New on September 26, 2024 and sell it today you would earn a total of  57.00  from holding First Trust New or generate 9.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	27.82%
Values	Daily Returns

First Trust New  vs.  MFS Municipal Income

First Trust New

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust New has generated negative risk-adjusted returns adding no value to fund investors. Despite quite persistent basic indicators, First Trust is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

MFS Municipal Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MFS Municipal Income has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, MFS Municipal is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with First Trust and MFS Municipal

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

The idea behind First Trust New and MFS 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.