Correlation Between SCE Trust and Morgan Stanley

Can any of the company-specific risk be diversified away by investing in both SCE Trust and Morgan Stanley 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 SCE Trust and Morgan Stanley into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SCE Trust IV and Morgan Stanley, you can compare the effects of market volatilities on SCE Trust and Morgan Stanley 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 SCE Trust with a short position of Morgan Stanley. Check out your portfolio center. Please also check ongoing floating volatility patterns of SCE Trust and Morgan Stanley.

Diversification Opportunities for SCE Trust and Morgan Stanley

0.63

Correlation Coefficient

SCE Trust  Morgan Stanley

Poor diversification

The 3 months correlation between SCE and Morgan is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding SCE Trust IV and Morgan Stanley in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morgan Stanley and SCE Trust 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 SCE Trust IV are associated (or correlated) with Morgan Stanley. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Morgan Stanley has no effect on the direction of SCE Trust i.e., SCE Trust and Morgan Stanley go up and down completely randomly.

Pair Corralation between SCE Trust and Morgan Stanley

Assuming the 90 days trading horizon SCE Trust is expected to generate 1.56 times less return on investment than Morgan Stanley. But when comparing it to its historical volatility, SCE Trust IV is 1.05 times less risky than Morgan Stanley. It trades about 0.08 of its potential returns per unit of risk. Morgan Stanley is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,229  in Morgan Stanley on September 28, 2024 and sell it today you would earn a total of  195.00  from holding Morgan Stanley or generate 8.75% return on investment over 90 days.

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

SCE Trust IV  vs.  Morgan Stanley

SCE Trust IV

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SCE Trust IV are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively steady technical and fundamental indicators, SCE Trust is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

Morgan Stanley

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Morgan Stanley is not utilizing all of its potentials. The new stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with SCE Trust and Morgan Stanley

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

The idea behind SCE Trust IV and Morgan Stanley 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.