Correlation Between MFS Municipal and Western Asset

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

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

Diversification Opportunities for MFS Municipal and Western Asset

0.62

Correlation Coefficient

MFS Municipal  Western Asset

Poor diversification

The 3 months correlation between MFS and Western is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding MFS Municipal Income and Western Asset Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Global and MFS Municipal 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 Municipal Income are associated (or correlated) with Western Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Asset Global has no effect on the direction of MFS Municipal i.e., MFS Municipal and Western Asset go up and down completely randomly.

Pair Corralation between MFS Municipal and Western Asset

Considering the 90-day investment horizon MFS Municipal is expected to generate 3.74 times less return on investment than Western Asset. In addition to that, MFS Municipal is 1.36 times more volatile than Western Asset Global. It trades about 0.04 of its total potential returns per unit of risk. Western Asset Global is currently generating about 0.2 per unit of volatility. If you would invest  1,079  in Western Asset Global on December 27, 2024 and sell it today you would earn a total of  68.00  from holding Western Asset Global or generate 6.3% return on investment over 90 days.

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

MFS Municipal Income  vs.  Western Asset Global

MFS Municipal Income

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MFS Municipal Income are ranked lower than 3 (%) 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 recent stock price disarray, may contribute to short-term losses for the investors.

Western Asset Global

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset Global are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Western Asset may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with MFS Municipal and Western Asset

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

The idea behind MFS Municipal Income and Western Asset Global 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.