Correlation Between Morgan Stanley and Lake Resources

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

Diversification Opportunities for Morgan Stanley and Lake Resources

-0.17

Correlation Coefficient

Morgan Stanley  Lake Resources

Good diversification

The 3 months correlation between Morgan and Lake is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and Lake Resources NL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lake Resources NL 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 Lake Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lake Resources NL has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Lake Resources go up and down completely randomly.

Pair Corralation between Morgan Stanley and Lake Resources

Given the investment horizon of 90 days Morgan Stanley is expected to generate 2.93 times less return on investment than Lake Resources. But when comparing it to its historical volatility, Morgan Stanley Direct is 12.62 times less risky than Lake Resources. It trades about 0.16 of its potential returns per unit of risk. Lake Resources NL is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2.74  in Lake Resources NL on September 13, 2024 and sell it today you would lose (0.24) from holding Lake Resources NL or give up 8.76% of portfolio value over 90 days.

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

Morgan Stanley Direct  vs.  Lake Resources NL

Morgan Stanley Direct

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley Direct are ranked lower than 12 (%) 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.

Lake Resources NL

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lake Resources NL are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward-looking signals, Lake Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Morgan Stanley and Lake Resources

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

The idea behind Morgan Stanley Direct and Lake Resources NL 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.