Correlation Between Morgan Stanley and Computershare

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

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

Diversification Opportunities for Morgan Stanley and Computershare

-0.66

Correlation Coefficient

Morgan Stanley  Computershare

Excellent diversification

The 3 months correlation between Morgan and Computershare is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley and Computershare Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Computershare ADR 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 are associated (or correlated) with Computershare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Computershare ADR has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Computershare go up and down completely randomly.

Pair Corralation between Morgan Stanley and Computershare

Assuming the 90 days horizon Morgan Stanley is expected to under-perform the Computershare. But the preferred stock apears to be less risky and, when comparing its historical volatility, Morgan Stanley is 3.85 times less risky than Computershare. The preferred stock trades about -0.07 of its potential returns per unit of risk. The Computershare Ltd ADR is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  1,727  in Computershare Ltd ADR on October 26, 2024 and sell it today you would earn a total of  432.00  from holding Computershare Ltd ADR or generate 25.01% return on investment over 90 days.

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

Morgan Stanley  vs.  Computershare Ltd ADR

Morgan Stanley

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Morgan Stanley has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Morgan Stanley is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Computershare ADR

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Computershare Ltd ADR are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Computershare showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Morgan Stanley and Computershare

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

The idea behind Morgan Stanley and Computershare Ltd ADR 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.