Correlation Between Morgan Stanley and Diversified Bond

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

By analyzing existing cross correlation between Morgan Stanley Direct and Diversified Bond Fund, you can compare the effects of market volatilities on Morgan Stanley and Diversified Bond 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 Diversified Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Morgan Stanley and Diversified Bond.

Diversification Opportunities for Morgan Stanley and Diversified Bond

-0.4

Correlation Coefficient

Morgan Stanley  Diversified Bond

Very good diversification

The 3 months correlation between Morgan and Diversified is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and Diversified Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diversified Bond 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 Direct are associated (or correlated) with Diversified Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diversified Bond has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Diversified Bond go up and down completely randomly.

Pair Corralation between Morgan Stanley and Diversified Bond

Given the investment horizon of 90 days Morgan Stanley Direct is expected to generate 3.02 times more return on investment than Diversified Bond. However, Morgan Stanley is 3.02 times more volatile than Diversified Bond Fund. It trades about 0.09 of its potential returns per unit of risk. Diversified Bond Fund is currently generating about -0.19 per unit of risk. If you would invest  1,954  in Morgan Stanley Direct on September 21, 2024 and sell it today you would earn a total of  110.00  from holding Morgan Stanley Direct or generate 5.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Morgan Stanley Direct  vs.  Diversified Bond Fund

Morgan Stanley Direct

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley Direct are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, Morgan Stanley is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Diversified Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Morgan Stanley and Diversified Bond

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

The idea behind Morgan Stanley Direct and Diversified Bond Fund 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.

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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.