Correlation Between Morgan Stanley and IncomeShares SP500

Can any of the company-specific risk be diversified away by investing in both Morgan Stanley and IncomeShares SP500 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 IncomeShares SP500 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 IncomeShares SP500 Options, you can compare the effects of market volatilities on Morgan Stanley and IncomeShares SP500 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 IncomeShares SP500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Morgan Stanley and IncomeShares SP500.

Diversification Opportunities for Morgan Stanley and IncomeShares SP500

0.13

Correlation Coefficient

Morgan Stanley  IncomeShares SP500

Average diversification

The 3 months correlation between Morgan and IncomeShares is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and IncomeShares SP500 Options in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IncomeShares SP500 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 IncomeShares SP500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IncomeShares SP500 has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and IncomeShares SP500 go up and down completely randomly.

Pair Corralation between Morgan Stanley and IncomeShares SP500

Given the investment horizon of 90 days Morgan Stanley Direct is expected to generate 1.39 times more return on investment than IncomeShares SP500. However, Morgan Stanley is 1.39 times more volatile than IncomeShares SP500 Options. It trades about 0.11 of its potential returns per unit of risk. IncomeShares SP500 Options is currently generating about 0.06 per unit of risk. If you would invest  1,968  in Morgan Stanley Direct on September 28, 2024 and sell it today you would earn a total of  133.00  from holding Morgan Stanley Direct or generate 6.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	45.16%
Values	Daily Returns

Morgan Stanley Direct  vs.  IncomeShares SP500 Options

Morgan Stanley Direct

Risk-Adjusted Performance

8 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley Direct are ranked lower than 8 (%) 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.

IncomeShares SP500

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in IncomeShares SP500 Options are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, IncomeShares SP500 is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Morgan Stanley and IncomeShares SP500

The main advantage of trading using opposite Morgan Stanley and IncomeShares SP500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Morgan Stanley position performs unexpectedly, IncomeShares SP500 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 IncomeShares SP500 will offset losses from the drop in IncomeShares SP500's long position.

The idea behind Morgan Stanley Direct and IncomeShares SP500 Options 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.