Correlation Between MFS Municipal and MFS Investment

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

Diversification Opportunities for MFS Municipal and MFS Investment

0.71

Correlation Coefficient

MFS Municipal  MFS Investment

Poor diversification

The 3 months correlation between MFS and MFS is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding MFS Municipal Income 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 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 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 MFS Municipal i.e., MFS Municipal and MFS Investment go up and down completely randomly.

Pair Corralation between MFS Municipal and MFS Investment

Considering the 90-day investment horizon MFS Municipal Income is expected to generate 1.44 times more return on investment than MFS Investment. However, MFS Municipal is 1.44 times more volatile than MFS Investment Grade. It trades about 0.0 of its potential returns per unit of risk. MFS Investment Grade is currently generating about -0.08 per unit of risk. If you would invest  508.00  in MFS Municipal Income on April 29, 2025 and sell it today you would lose (1.00) from holding MFS Municipal Income or give up 0.2% of portfolio value over 90 days.

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

MFS Municipal Income  vs.  MFS Investment Grade

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.

MFS Investment Grade

Risk-Adjusted Performance

Very Weak

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

Pair Trading with MFS Municipal and MFS Investment

The main advantage of trading using opposite MFS Municipal and MFS Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MFS Municipal 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 MFS Municipal Income 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.