Correlation Between Franklin California and Mfs California

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

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

Diversification Opportunities for Franklin California and Mfs California

0.86

Correlation Coefficient

Franklin California  Mfs California

Very poor diversification

The 3 months correlation between Franklin and Mfs is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Franklin California Tax Free and Mfs California Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mfs California Municipal and Franklin California 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 Franklin California Tax Free are associated (or correlated) with Mfs California. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mfs California Municipal has no effect on the direction of Franklin California i.e., Franklin California and Mfs California go up and down completely randomly.

Pair Corralation between Franklin California and Mfs California

Assuming the 90 days horizon Franklin California Tax Free is expected to generate 0.95 times more return on investment than Mfs California. However, Franklin California Tax Free is 1.05 times less risky than Mfs California. It trades about -0.07 of its potential returns per unit of risk. Mfs California Municipal is currently generating about -0.07 per unit of risk. If you would invest  676.00  in Franklin California Tax Free on December 29, 2024 and sell it today you would lose (8.00) from holding Franklin California Tax Free or give up 1.18% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.39%
Values	Daily Returns

Franklin California Tax Free  vs.  Mfs California Municipal

Franklin California Tax

Risk-Adjusted Performance

Very Weak

Over the last 90 days Franklin California Tax Free has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Franklin California is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Mfs California Municipal

Risk-Adjusted Performance

Very Weak

Over the last 90 days Mfs California Municipal has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Mfs California is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Franklin California and Mfs California

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

The idea behind Franklin California Tax Free and Mfs California Municipal 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.