Correlation Between Morgan Stanley and CF Acquisition

Can any of the company-specific risk be diversified away by investing in both Morgan Stanley and CF Acquisition 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 CF Acquisition 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 CF Acquisition VII, you can compare the effects of market volatilities on Morgan Stanley and CF Acquisition 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 CF Acquisition. Check out your portfolio center. Please also check ongoing floating volatility patterns of Morgan Stanley and CF Acquisition.

Diversification Opportunities for Morgan Stanley and CF Acquisition

0.57

Correlation Coefficient

Morgan Stanley  CF Acquisition

Very weak diversification

The 3 months correlation between Morgan and CFFSU is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and CF Acquisition VII in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CF Acquisition VII 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 CF Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CF Acquisition VII has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and CF Acquisition go up and down completely randomly.

Pair Corralation between Morgan Stanley and CF Acquisition

Given the investment horizon of 90 days Morgan Stanley Direct is expected to generate 2.6 times more return on investment than CF Acquisition. However, Morgan Stanley is 2.6 times more volatile than CF Acquisition VII. It trades about 0.14 of its potential returns per unit of risk. CF Acquisition VII is currently generating about 0.16 per unit of risk. If you would invest  1,957  in Morgan Stanley Direct on September 18, 2024 and sell it today you would earn a total of  167.00  from holding Morgan Stanley Direct or generate 8.53% return on investment over 90 days.

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

Morgan Stanley Direct  vs.  CF Acquisition VII

Morgan Stanley Direct

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley Direct are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite weak fundamental indicators, Morgan Stanley may actually be approaching a critical reversion point that can send shares even higher in January 2025.

CF Acquisition VII

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CF Acquisition VII are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, CF Acquisition is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Morgan Stanley and CF Acquisition

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

The idea behind Morgan Stanley Direct and CF Acquisition VII 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.