Correlation Between Stepstone and Morgan Stanley

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

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

Diversification Opportunities for Stepstone and Morgan Stanley

0.87

Correlation Coefficient

Stepstone  Morgan Stanley

Very poor diversification

The 3 months correlation between Stepstone and Morgan is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Stepstone Group and Morgan Stanley in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morgan Stanley and Stepstone 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 Stepstone Group 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 Stepstone i.e., Stepstone and Morgan Stanley go up and down completely randomly.

Pair Corralation between Stepstone and Morgan Stanley

Given the investment horizon of 90 days Stepstone is expected to generate 1.77 times less return on investment than Morgan Stanley. In addition to that, Stepstone is 1.09 times more volatile than Morgan Stanley. It trades about 0.11 of its total potential returns per unit of risk. Morgan Stanley is currently generating about 0.21 per unit of volatility. If you would invest  9,852  in Morgan Stanley on September 18, 2024 and sell it today you would earn a total of  2,888  from holding Morgan Stanley or generate 29.31% return on investment over 90 days.

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

Stepstone Group  vs.  Morgan Stanley

Stepstone Group

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Stepstone Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal technical and fundamental indicators, Stepstone reported solid returns over the last few months and may actually be approaching a breakup point.

Morgan Stanley

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Morgan Stanley unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Stepstone and Morgan Stanley

The main advantage of trading using opposite Stepstone and Morgan Stanley positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepstone 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 Stepstone Group 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.

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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.