Correlation Between Digi International and Morgan Stanley

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

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

Diversification Opportunities for Digi International and Morgan Stanley

0.85

Correlation Coefficient

Digi International  Morgan Stanley

Very poor diversification

The 3 months correlation between Digi and Morgan is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Digi International and Morgan Stanley Direct in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morgan Stanley Direct and Digi International 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 Digi International 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 Direct has no effect on the direction of Digi International i.e., Digi International and Morgan Stanley go up and down completely randomly.

Pair Corralation between Digi International and Morgan Stanley

Given the investment horizon of 90 days Digi International is expected to generate 2.15 times more return on investment than Morgan Stanley. However, Digi International is 2.15 times more volatile than Morgan Stanley Direct. It trades about 0.18 of its potential returns per unit of risk. Morgan Stanley Direct is currently generating about 0.14 per unit of risk. If you would invest  2,651  in Digi International on September 15, 2024 and sell it today you would earn a total of  665.00  from holding Digi International or generate 25.08% return on investment over 90 days.

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

Digi International  vs.  Morgan Stanley Direct

Digi International

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Digi International are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile forward indicators, Digi International demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Morgan Stanley Direct

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley Direct are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating fundamental indicators, Morgan Stanley may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Digi International and Morgan Stanley

The main advantage of trading using opposite Digi International and Morgan Stanley positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Digi International 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 Digi International and Morgan Stanley Direct 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.