Correlation Between Dimensional World and Morgan Stanley

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

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

Diversification Opportunities for Dimensional World and Morgan Stanley

0.98

Correlation Coefficient

Dimensional World  Morgan Stanley

Almost no diversification

The 3 months correlation between Dimensional and Morgan is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional World ex 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 Dimensional World 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 Dimensional World ex 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 Dimensional World i.e., Dimensional World and Morgan Stanley go up and down completely randomly.

Pair Corralation between Dimensional World and Morgan Stanley

Given the investment horizon of 90 days Dimensional World is expected to generate 2.51 times less return on investment than Morgan Stanley. But when comparing it to its historical volatility, Dimensional World ex is 1.19 times less risky than Morgan Stanley. It trades about 0.07 of its potential returns per unit of risk. Morgan Stanley ETF is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  5,502  in Morgan Stanley ETF on October 21, 2024 and sell it today you would earn a total of  108.00  from holding Morgan Stanley ETF or generate 1.96% return on investment over 90 days.

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

Dimensional World ex  vs.  Morgan Stanley ETF

Dimensional World

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dimensional World ex has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Dimensional World is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Morgan Stanley ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Morgan Stanley ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward indicators, Morgan Stanley is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Dimensional World and Morgan Stanley

The main advantage of trading using opposite Dimensional World and Morgan Stanley positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional World 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 Dimensional World ex 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.