Correlation Between MFS High and Putnam Municipal

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

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

Diversification Opportunities for MFS High and Putnam Municipal

0.83

Correlation Coefficient

MFS High  Putnam Municipal

Very poor diversification

The 3 months correlation between MFS and Putnam is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding MFS High Income and Putnam Municipal Opportunities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Putnam Municipal Opp and MFS High 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 High Income are associated (or correlated) with Putnam Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Putnam Municipal Opp has no effect on the direction of MFS High i.e., MFS High and Putnam Municipal go up and down completely randomly.

Pair Corralation between MFS High and Putnam Municipal

Considering the 90-day investment horizon MFS High Income is expected to under-perform the Putnam Municipal. But the stock apears to be less risky and, when comparing its historical volatility, MFS High Income is 1.14 times less risky than Putnam Municipal. The stock trades about -0.02 of its potential returns per unit of risk. The Putnam Municipal Opportunities is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,065  in Putnam Municipal Opportunities on September 13, 2024 and sell it today you would earn a total of  3.50  from holding Putnam Municipal Opportunities or generate 0.33% return on investment over 90 days.

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

MFS High Income  vs.  Putnam Municipal Opportunities

MFS High Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MFS High Income has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, MFS High is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Putnam Municipal Opp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Putnam Municipal Opportunities has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Putnam Municipal is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with MFS High and Putnam Municipal

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

The idea behind MFS High Income and Putnam Municipal Opportunities 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.