Correlation Between Morningstar and Moodys

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

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

Diversification Opportunities for Morningstar and Moodys

0.57

Correlation Coefficient

Morningstar  Moodys

Very weak diversification

The 3 months correlation between Morningstar and Moodys is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar and Moodys in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Moodys and Morningstar 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 Morningstar are associated (or correlated) with Moodys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Moodys has no effect on the direction of Morningstar i.e., Morningstar and Moodys go up and down completely randomly.

Pair Corralation between Morningstar and Moodys

Given the investment horizon of 90 days Morningstar is expected to under-perform the Moodys. But the stock apears to be less risky and, when comparing its historical volatility, Morningstar is 1.21 times less risky than Moodys. The stock trades about -0.16 of its potential returns per unit of risk. The Moodys is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  47,264  in Moodys on December 30, 2024 and sell it today you would lose (1,126) from holding Moodys or give up 2.38% of portfolio value over 90 days.

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

Morningstar  vs.  Moodys

Morningstar

Risk-Adjusted Performance

Very Weak

Over the last 90 days Morningstar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Moodys

Risk-Adjusted Performance

Very Weak

Over the last 90 days Moodys has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Moodys is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Morningstar and Moodys

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

The idea behind Morningstar and Moodys 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.