Correlation Between GM and Mfs California
Can any of the company-specific risk be diversified away by investing in both GM and Mfs California 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 GM and Mfs California into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Mfs California Municipal, you can compare the effects of market volatilities on GM and Mfs California 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 GM with a short position of Mfs California. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Mfs California.
Diversification Opportunities for GM and Mfs California
-0.56 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between GM and Mfs is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Mfs California Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mfs California Municipal and GM 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 General Motors are associated (or correlated) with Mfs California. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mfs California Municipal has no effect on the direction of GM i.e., GM and Mfs California go up and down completely randomly.
Pair Corralation between GM and Mfs California
Allowing for the 90-day total investment horizon General Motors is expected to generate 9.36 times more return on investment than Mfs California. However, GM is 9.36 times more volatile than Mfs California Municipal. It trades about 0.08 of its potential returns per unit of risk. Mfs California Municipal is currently generating about 0.11 per unit of risk. If you would invest 4,539 in General Motors on September 3, 2024 and sell it today you would earn a total of 1,020 from holding General Motors or generate 22.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Mfs California Municipal
Performance |
| Timeline |
| General Motors |
| Mfs California Municipal |
GM and Mfs California Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Mfs California
The main advantage of trading using opposite GM and Mfs California positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Mfs California 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 California will offset losses from the drop in Mfs California's long position.The idea behind General Motors and Mfs California 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.| Mfs California vs. Franklin California Tax Free | Mfs California vs. Franklin California Tax Free | Mfs California vs. Franklin California Tax Free | Mfs California vs. Franklin California Tax Free |
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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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