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 Investment 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

0.56

Correlation Coefficient

Western Asset  MFS Municipal

Very weak diversification

The 3 months correlation between Western and MFS is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Investment 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 Investment 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 Investment is expected to under-perform the MFS Municipal. But the stock apears to be less risky and, when comparing its historical volatility, Western Asset Investment is 1.21 times less risky than MFS Municipal. The stock trades about -0.14 of its potential returns per unit of risk. The MFS Municipal Income is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  553.00  in MFS Municipal Income on September 2, 2024 and sell it today you would earn a total of  17.00  from holding MFS Municipal Income or generate 3.07% return on investment over 90 days.

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

Western Asset Investment  vs.  MFS Municipal Income

Western Asset Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Asset Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, Western Asset is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

MFS Municipal Income

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MFS Municipal Income are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, MFS Municipal is not utilizing all of its potentials. The latest 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 Investment 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.