Correlation Between Morgan Stanley and FLOW TRADERS

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

By analyzing existing cross correlation between Morgan Stanley and FLOW TRADERS LTD, you can compare the effects of market volatilities on Morgan Stanley and FLOW TRADERS 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 FLOW TRADERS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Morgan Stanley and FLOW TRADERS.

Diversification Opportunities for Morgan Stanley and FLOW TRADERS

0.65

Correlation Coefficient

Morgan Stanley  FLOW TRADERS

Poor diversification

The 3 months correlation between Morgan and FLOW is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley and FLOW TRADERS LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FLOW TRADERS LTD 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 are associated (or correlated) with FLOW TRADERS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FLOW TRADERS LTD has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and FLOW TRADERS go up and down completely randomly.

Pair Corralation between Morgan Stanley and FLOW TRADERS

Assuming the 90 days trading horizon Morgan Stanley is expected to under-perform the FLOW TRADERS. But the stock apears to be less risky and, when comparing its historical volatility, Morgan Stanley is 1.08 times less risky than FLOW TRADERS. The stock trades about -0.13 of its potential returns per unit of risk. The FLOW TRADERS LTD is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,116  in FLOW TRADERS LTD on October 1, 2024 and sell it today you would earn a total of  14.00  from holding FLOW TRADERS LTD or generate 0.66% return on investment over 90 days.

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

Morgan Stanley  vs.  FLOW TRADERS LTD

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. In spite of comparatively fragile fundamental indicators, Morgan Stanley unveiled solid returns over the last few months and may actually be approaching a breakup point.

FLOW TRADERS LTD

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in FLOW TRADERS LTD are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, FLOW TRADERS may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Morgan Stanley and FLOW TRADERS

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

The idea behind Morgan Stanley and FLOW TRADERS LTD 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.