Correlation Between Morgan Stanley and Fam Small

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

Diversification Opportunities for Morgan Stanley and Fam Small

0.83

Correlation Coefficient

Morgan Stanley  Fam Small

Very poor diversification

The 3 months correlation between Morgan and Fam is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and Fam Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fam Small Cap 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 Fam Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fam Small Cap has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Fam Small go up and down completely randomly.

Pair Corralation between Morgan Stanley and Fam Small

Given the investment horizon of 90 days Morgan Stanley is expected to generate 1.04 times less return on investment than Fam Small. In addition to that, Morgan Stanley is 1.55 times more volatile than Fam Small Cap. It trades about 0.04 of its total potential returns per unit of risk. Fam Small Cap is currently generating about 0.06 per unit of volatility. If you would invest  2,204  in Fam Small Cap on September 14, 2024 and sell it today you would earn a total of  756.00  from holding Fam Small Cap or generate 34.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	45.45%
Values	Daily Returns

Morgan Stanley Direct  vs.  Fam Small Cap

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.

Fam Small Cap

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fam Small Cap are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Fam Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Morgan Stanley and Fam Small

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

The idea behind Morgan Stanley Direct and Fam Small Cap 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.