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 High, 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

0.3

Correlation Coefficient

MFS Municipal  Western Asset

Weak diversification

The 3 months correlation between MFS and Western is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding MFS Municipal Income and Western Asset High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset High 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 High 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 Income is expected to generate 0.93 times more return on investment than Western Asset. However, MFS Municipal Income is 1.07 times less risky than Western Asset. It trades about 0.03 of its potential returns per unit of risk. Western Asset High is currently generating about 0.03 per unit of risk. 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

MFS Municipal Income  vs.  Western Asset High

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.

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.

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 High 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.