Correlation Between Mfs California and Franklin California

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

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

Diversification Opportunities for Mfs California and Franklin California

0.86

Correlation Coefficient

Mfs California  Franklin California

Very poor diversification

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

Pair Corralation between Mfs California and Franklin California

Assuming the 90 days horizon Mfs California Municipal is expected to under-perform the Franklin California. In addition to that, Mfs California is 1.03 times more volatile than Franklin California Tax Free. It trades about -0.07 of its total potential returns per unit of risk. Franklin California Tax Free is currently generating about -0.06 per unit of volatility. If you would invest  675.00  in Franklin California Tax Free on December 29, 2024 and sell it today you would lose (7.00) from holding Franklin California Tax Free or give up 1.04% of portfolio value over 90 days.

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

Mfs California Municipal  vs.  Franklin California Tax Free

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.

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.

Pair Trading with Mfs California and Franklin California

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

The idea behind Mfs California Municipal and Franklin California Tax Free 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .