Correlation Between American Homes and Morgan Stanley

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

By analyzing existing cross correlation between American Homes 4 and Morgan Stanley Institutional, you can compare the effects of market volatilities on American Homes and Morgan Stanley 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 American Homes with a short position of Morgan Stanley. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Homes and Morgan Stanley.

Diversification Opportunities for American Homes and Morgan Stanley

-0.63

Correlation Coefficient

American Homes  Morgan Stanley

Excellent diversification

The 3 months correlation between American and Morgan is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Morgan Stanley Institutional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morgan Stanley Insti and American Homes 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 American Homes 4 are associated (or correlated) with Morgan Stanley. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Morgan Stanley Insti has no effect on the direction of American Homes i.e., American Homes and Morgan Stanley go up and down completely randomly.

Pair Corralation between American Homes and Morgan Stanley

Considering the 90-day investment horizon American Homes 4 is expected to under-perform the Morgan Stanley. In addition to that, American Homes is 2.05 times more volatile than Morgan Stanley Institutional. It trades about -0.09 of its total potential returns per unit of risk. Morgan Stanley Institutional is currently generating about -0.01 per unit of volatility. If you would invest  1,013  in Morgan Stanley Institutional on September 15, 2024 and sell it today you would lose (4.00) from holding Morgan Stanley Institutional or give up 0.39% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	79.69%
Values	Daily Returns

American Homes 4  vs.  Morgan Stanley Institutional

American Homes 4

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Homes 4 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's primary indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Morgan Stanley Insti

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Morgan Stanley Institutional has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Morgan Stanley is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with American Homes and Morgan Stanley

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

The idea behind American Homes 4 and Morgan Stanley Institutional 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.