Correlation Between Western Asset and MFS Municipal

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

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

Diversification Opportunities for Western Asset and MFS Municipal

0.3

Correlation Coefficient

Western Asset  MFS Municipal

Weak diversification

The 3 months correlation between Western and MFS is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset High 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 Western Asset 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 Western Asset High 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 Western Asset i.e., Western Asset and MFS Municipal go up and down completely randomly.

Pair Corralation between Western Asset and MFS Municipal

Considering the 90-day investment horizon Western Asset is expected to generate 1.13 times less return on investment than MFS Municipal. In addition to that, Western Asset is 1.07 times more volatile than MFS Municipal Income. It trades about 0.03 of its total potential returns per unit of risk. MFS Municipal Income is currently generating about 0.03 per unit of volatility. If you would invest  473.00  in MFS Municipal Income on September 20, 2024 and sell it today you would earn a total of  64.40  from holding MFS Municipal Income or generate 13.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Western Asset High  vs.  MFS Municipal Income

Western Asset High

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Asset High has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Western Asset is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the 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 Western Asset and MFS Municipal

The main advantage of trading using opposite Western Asset and MFS Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Asset 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 Western Asset High 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.

Check out your portfolio center.

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 Money Managers module to screen money managers from public funds and ETFs managed around the world.