Correlation Between Caterpillar and Morgan Stanley

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

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

Diversification Opportunities for Caterpillar and Morgan Stanley

0.31

Correlation Coefficient

Caterpillar  Morgan Stanley

Weak diversification

The 3 months correlation between Caterpillar and Morgan is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Morgan Stanley ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morgan Stanley ETF and Caterpillar 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 Caterpillar 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 ETF has no effect on the direction of Caterpillar i.e., Caterpillar and Morgan Stanley go up and down completely randomly.

Pair Corralation between Caterpillar and Morgan Stanley

Considering the 90-day investment horizon Caterpillar is expected to under-perform the Morgan Stanley. In addition to that, Caterpillar is 1.75 times more volatile than Morgan Stanley ETF. It trades about -0.16 of its total potential returns per unit of risk. Morgan Stanley ETF is currently generating about -0.03 per unit of volatility. If you would invest  7,316  in Morgan Stanley ETF on December 2, 2024 and sell it today you would lose (121.00) from holding Morgan Stanley ETF or give up 1.65% of portfolio value over 90 days.

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

Caterpillar  vs.  Morgan Stanley ETF

Caterpillar

Risk-Adjusted Performance

Very Weak

Over the last 90 days Caterpillar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Morgan Stanley ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days Morgan Stanley ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, Morgan Stanley is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Caterpillar and Morgan Stanley

The main advantage of trading using opposite Caterpillar and Morgan Stanley positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar 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 Caterpillar and Morgan Stanley ETF 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.