Correlation Between ESH Acquisition and Morgan Stanley

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

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

Diversification Opportunities for ESH Acquisition and Morgan Stanley

-0.11

Correlation Coefficient

ESH Acquisition  Morgan Stanley

Good diversification

The 3 months correlation between ESH and Morgan is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding ESH Acquisition Corp and Morgan Stanley in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morgan Stanley and ESH Acquisition 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 ESH Acquisition Corp 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 ESH Acquisition i.e., ESH Acquisition and Morgan Stanley go up and down completely randomly.

Pair Corralation between ESH Acquisition and Morgan Stanley

Given the investment horizon of 90 days ESH Acquisition Corp is expected to under-perform the Morgan Stanley. But the stock apears to be less risky and, when comparing its historical volatility, ESH Acquisition Corp is 2.17 times less risky than Morgan Stanley. The stock trades about -0.07 of its potential returns per unit of risk. The Morgan Stanley is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  12,718  in Morgan Stanley on December 26, 2024 and sell it today you would lose (498.00) from holding Morgan Stanley or give up 3.92% of portfolio value over 90 days.

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

ESH Acquisition Corp  vs.  Morgan Stanley

ESH Acquisition Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days ESH Acquisition Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical indicators, ESH Acquisition is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Morgan Stanley

Risk-Adjusted Performance

Very Weak

Over the last 90 days Morgan Stanley has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Morgan Stanley is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with ESH Acquisition and Morgan Stanley

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

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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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.