Correlation Between MFS Municipal and Invesco Quality

Can any of the company-specific risk be diversified away by investing in both MFS Municipal and Invesco Quality 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 Invesco Quality 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 Invesco Quality Municipal, you can compare the effects of market volatilities on MFS Municipal and Invesco Quality 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 Invesco Quality. Check out your portfolio center. Please also check ongoing floating volatility patterns of MFS Municipal and Invesco Quality.

Diversification Opportunities for MFS Municipal and Invesco Quality

0.88

Correlation Coefficient

MFS Municipal  Invesco Quality

Very poor diversification

The 3 months correlation between MFS and Invesco is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding MFS Municipal Income and Invesco Quality Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Quality Municipal 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 Invesco Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Quality Municipal has no effect on the direction of MFS Municipal i.e., MFS Municipal and Invesco Quality go up and down completely randomly.

Pair Corralation between MFS Municipal and Invesco Quality

Considering the 90-day investment horizon MFS Municipal is expected to generate 1.24 times less return on investment than Invesco Quality. In addition to that, MFS Municipal is 1.26 times more volatile than Invesco Quality Municipal. It trades about 0.14 of its total potential returns per unit of risk. Invesco Quality Municipal is currently generating about 0.21 per unit of volatility. If you would invest  976.00  in Invesco Quality Municipal on November 29, 2024 and sell it today you would earn a total of  27.00  from holding Invesco Quality Municipal or generate 2.77% return on investment over 90 days.

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

MFS Municipal Income  vs.  Invesco Quality Municipal

MFS Municipal Income

Risk-Adjusted Performance

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.

Invesco Quality Municipal

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco Quality Municipal has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Invesco Quality is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with MFS Municipal and Invesco Quality

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

The idea behind MFS Municipal Income and Invesco Quality Municipal 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 Global Correlations module to find global opportunities by holding instruments from different markets.