Correlation Between Morgan Stanley and Armada Mercantile

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

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

Diversification Opportunities for Morgan Stanley and Armada Mercantile

0.14

Correlation Coefficient

Morgan Stanley  Armada Mercantile

Average diversification

The 3 months correlation between Morgan and Armada is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley and Armada Mercantile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Armada Mercantile and Morgan Stanley 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 Morgan Stanley are associated (or correlated) with Armada Mercantile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Armada Mercantile has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Armada Mercantile go up and down completely randomly.

Pair Corralation between Morgan Stanley and Armada Mercantile

Assuming the 90 days horizon Morgan Stanley is expected to under-perform the Armada Mercantile. But the preferred stock apears to be less risky and, when comparing its historical volatility, Morgan Stanley is 5.27 times less risky than Armada Mercantile. The preferred stock trades about -0.21 of its potential returns per unit of risk. The Armada Mercantile is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  32.00  in Armada Mercantile on September 30, 2024 and sell it today you would lose (2.00) from holding Armada Mercantile or give up 6.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Morgan Stanley  vs.  Armada Mercantile

Morgan Stanley

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Morgan Stanley has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Preferred Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Armada Mercantile

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Armada Mercantile has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Armada Mercantile is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Morgan Stanley and Armada Mercantile

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

The idea behind Morgan Stanley and Armada Mercantile 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.