Correlation Between Northern Lights and Morgan Stanley

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

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

Diversification Opportunities for Northern Lights and Morgan Stanley

0.83

Correlation Coefficient

Northern Lights  Morgan Stanley

Very poor diversification

The 3 months correlation between Northern and Morgan is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and Morgan Stanley Pathway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morgan Stanley Pathway and Northern Lights 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 Northern Lights 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 Pathway has no effect on the direction of Northern Lights i.e., Northern Lights and Morgan Stanley go up and down completely randomly.

Pair Corralation between Northern Lights and Morgan Stanley

Given the investment horizon of 90 days Northern Lights is expected to generate 1.04 times more return on investment than Morgan Stanley. However, Northern Lights is 1.04 times more volatile than Morgan Stanley Pathway. It trades about -0.04 of its potential returns per unit of risk. Morgan Stanley Pathway is currently generating about -0.06 per unit of risk. If you would invest  3,486  in Northern Lights on December 20, 2024 and sell it today you would lose (87.00) from holding Northern Lights or give up 2.5% of portfolio value over 90 days.

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

Northern Lights  vs.  Morgan Stanley Pathway

Northern Lights

Risk-Adjusted Performance

Very Weak

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

Morgan Stanley Pathway

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Northern Lights and Morgan Stanley

The main advantage of trading using opposite Northern Lights and Morgan Stanley positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Lights 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 Northern Lights and Morgan Stanley Pathway 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.