Correlation Between Microsoft and MFS Municipal

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

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

Diversification Opportunities for Microsoft and MFS Municipal

0.33

Correlation Coefficient

Microsoft  MFS Municipal

Weak diversification

The 3 months correlation between Microsoft and MFS is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and MFS Municipal Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MFS Municipal Income and Microsoft 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 Microsoft are associated (or correlated) with MFS Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MFS Municipal Income has no effect on the direction of Microsoft i.e., Microsoft and MFS Municipal go up and down completely randomly.

Pair Corralation between Microsoft and MFS Municipal

Given the investment horizon of 90 days Microsoft is expected to generate 1.67 times more return on investment than MFS Municipal. However, Microsoft is 1.67 times more volatile than MFS Municipal Income. It trades about 0.23 of its potential returns per unit of risk. MFS Municipal Income is currently generating about 0.0 per unit of risk. If you would invest  45,427  in Microsoft on May 16, 2025 and sell it today you would earn a total of  6,631  from holding Microsoft or generate 14.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Microsoft  vs.  MFS Municipal Income

Microsoft

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Microsoft unveiled solid returns over the last few months and may actually be approaching a breakup point.

MFS Municipal Income

Risk-Adjusted Performance

Weakest

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.

Pair Trading with Microsoft and MFS Municipal

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

The idea behind Microsoft and MFS Municipal Income 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.