Correlation Between Morgan Stanley and Prudential Financial

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

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

Diversification Opportunities for Morgan Stanley and Prudential Financial

0.84

Correlation Coefficient

Morgan Stanley  Prudential Financial

Very poor diversification

The 3 months correlation between Morgan and Prudential is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Global and Prudential Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Financial 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 Global are associated (or correlated) with Prudential Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Financial has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Prudential Financial go up and down completely randomly.

Pair Corralation between Morgan Stanley and Prudential Financial

Assuming the 90 days horizon Morgan Stanley Global is expected to under-perform the Prudential Financial. In addition to that, Morgan Stanley is 1.41 times more volatile than Prudential Financial Services. It trades about -0.04 of its total potential returns per unit of risk. Prudential Financial Services is currently generating about 0.01 per unit of volatility. If you would invest  2,413  in Prudential Financial Services on October 26, 2024 and sell it today you would earn a total of  12.00  from holding Prudential Financial Services or generate 0.5% return on investment over 90 days.

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

Morgan Stanley Global  vs.  Prudential Financial Services

Morgan Stanley Global

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Morgan Stanley Global has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Morgan Stanley is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Prudential Financial

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Financial Services are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Prudential Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Morgan Stanley and Prudential Financial

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

The idea behind Morgan Stanley Global and Prudential Financial Services 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.