Correlation Between EMCOR and Morgan Stanley

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

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

Diversification Opportunities for EMCOR and Morgan Stanley

0.51

Correlation Coefficient

EMCOR  Morgan Stanley

Very weak diversification

The 3 months correlation between EMCOR and Morgan is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding EMCOR Group and Morgan Stanley Direct in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morgan Stanley Direct and EMCOR 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 EMCOR 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 Direct has no effect on the direction of EMCOR i.e., EMCOR and Morgan Stanley go up and down completely randomly.

Pair Corralation between EMCOR and Morgan Stanley

Considering the 90-day investment horizon EMCOR Group is expected to generate 1.15 times more return on investment than Morgan Stanley. However, EMCOR is 1.15 times more volatile than Morgan Stanley Direct. It trades about 0.13 of its potential returns per unit of risk. Morgan Stanley Direct is currently generating about 0.04 per unit of risk. If you would invest  15,084  in EMCOR Group on October 3, 2024 and sell it today you would earn a total of  30,306  from holding EMCOR Group or generate 200.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	47.88%
Values	Daily Returns

EMCOR Group  vs.  Morgan Stanley Direct

EMCOR Group

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in EMCOR Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady primary indicators, EMCOR may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Morgan Stanley Direct

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley Direct are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, Morgan Stanley is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with EMCOR and Morgan Stanley

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