Correlation Between Morgan Stanley and FIRST MUTUAL

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

Diversification Opportunities for Morgan Stanley and FIRST MUTUAL

0.8

Correlation Coefficient

Morgan Stanley  FIRST MUTUAL

Very poor diversification

The 3 months correlation between Morgan and FIRST is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and FIRST MUTUAL PROPERTIES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FIRST MUTUAL PROPERTIES 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 FIRST MUTUAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FIRST MUTUAL PROPERTIES has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and FIRST MUTUAL go up and down completely randomly.

Pair Corralation between Morgan Stanley and FIRST MUTUAL

Given the investment horizon of 90 days Morgan Stanley is expected to generate 10.22 times less return on investment than FIRST MUTUAL. But when comparing it to its historical volatility, Morgan Stanley Direct is 4.44 times less risky than FIRST MUTUAL. It trades about 0.11 of its potential returns per unit of risk. FIRST MUTUAL PROPERTIES is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  6,499  in FIRST MUTUAL PROPERTIES on September 28, 2024 and sell it today you would earn a total of  5,811  from holding FIRST MUTUAL PROPERTIES or generate 89.41% return on investment over 90 days.

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

Morgan Stanley Direct  vs.  FIRST MUTUAL PROPERTIES

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.

FIRST MUTUAL PROPERTIES

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in FIRST MUTUAL PROPERTIES are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak forward indicators, FIRST MUTUAL demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Morgan Stanley and FIRST MUTUAL

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

The idea behind Morgan Stanley Direct and FIRST MUTUAL PROPERTIES 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.