Correlation Between Pimco California and MFS Investment

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

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

Diversification Opportunities for Pimco California and MFS Investment

0.6

Correlation Coefficient

Pimco California  MFS Investment

Poor diversification

The 3 months correlation between Pimco and MFS is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Pimco California Municipal and MFS Investment Grade in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MFS Investment Grade and Pimco 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 Pimco California Municipal are associated (or correlated) with MFS Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MFS Investment Grade has no effect on the direction of Pimco California i.e., Pimco California and MFS Investment go up and down completely randomly.

Pair Corralation between Pimco California and MFS Investment

Considering the 90-day investment horizon Pimco California is expected to generate 11.38 times less return on investment than MFS Investment. In addition to that, Pimco California is 1.2 times more volatile than MFS Investment Grade. It trades about 0.01 of its total potential returns per unit of risk. MFS Investment Grade is currently generating about 0.19 per unit of volatility. If you would invest  801.00  in MFS Investment Grade on August 31, 2024 and sell it today you would earn a total of  20.00  from holding MFS Investment Grade or generate 2.5% return on investment over 90 days.

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

Pimco California Municipal  vs.  MFS Investment Grade

Pimco California Mun

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pimco California Municipal has generated negative risk-adjusted returns adding no value to fund investors. Despite quite persistent fundamental indicators, Pimco California is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

MFS Investment Grade

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MFS Investment Grade are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, MFS Investment is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Pimco California and MFS Investment

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

The idea behind Pimco California Municipal and MFS Investment Grade 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.