Correlation Between Morgan Stanley and Evergreen Warrant

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

Diversification Opportunities for Morgan Stanley and Evergreen Warrant

-0.16

Correlation Coefficient

Morgan Stanley  Evergreen Warrant

Good diversification

The 3 months correlation between Morgan and Evergreen is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and Evergreen Warrant in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evergreen Warrant 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 Evergreen Warrant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evergreen Warrant has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Evergreen Warrant go up and down completely randomly.

Pair Corralation between Morgan Stanley and Evergreen Warrant

Given the investment horizon of 90 days Morgan Stanley is expected to generate 8.71 times less return on investment than Evergreen Warrant. But when comparing it to its historical volatility, Morgan Stanley Direct is 16.19 times less risky than Evergreen Warrant. It trades about 0.14 of its potential returns per unit of risk. Evergreen Warrant is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  6.00  in Evergreen Warrant on September 14, 2024 and sell it today you would earn a total of  0.00  from holding Evergreen Warrant or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	23.44%
Values	Daily Returns

Morgan Stanley Direct  vs.  Evergreen Warrant

Morgan Stanley Direct

Risk-Adjusted Performance

10 of 100

Good

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 weak fundamental indicators, Morgan Stanley may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Evergreen Warrant

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Evergreen Warrant are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Evergreen Warrant showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Morgan Stanley and Evergreen Warrant

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

The idea behind Morgan Stanley Direct and Evergreen Warrant 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.