Correlation Between Morgan Stanley and International Stem

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

Diversification Opportunities for Morgan Stanley and International Stem

0.35

Correlation Coefficient

Morgan Stanley  International Stem

Weak diversification

The 3 months correlation between Morgan and International is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and International Stem Cell in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Stem Cell 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 International Stem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Stem Cell has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and International Stem go up and down completely randomly.

Pair Corralation between Morgan Stanley and International Stem

Given the investment horizon of 90 days Morgan Stanley is expected to generate 18.9 times less return on investment than International Stem. But when comparing it to its historical volatility, Morgan Stanley Direct is 10.57 times less risky than International Stem. It trades about 0.04 of its potential returns per unit of risk. International Stem Cell is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  18.00  in International Stem Cell on September 30, 2024 and sell it today you would lose (8.00) from holding International Stem Cell or give up 44.44% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	47.48%
Values	Daily Returns

Morgan Stanley Direct  vs.  International Stem Cell

Morgan Stanley Direct

Risk-Adjusted Performance

10 of 100

OK

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

International Stem Cell

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in International Stem Cell are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, International Stem displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Morgan Stanley and International Stem

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

The idea behind Morgan Stanley Direct and International Stem Cell 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.