Correlation Between Morgan Stanley and Babcock Wilcox

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

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

Diversification Opportunities for Morgan Stanley and Babcock Wilcox

0.58

Correlation Coefficient

Morgan Stanley  Babcock Wilcox

Very weak diversification

The 3 months correlation between Morgan and Babcock is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley and Babcock Wilcox Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Babcock Wilcox Enter 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 Babcock Wilcox. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Babcock Wilcox Enter has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Babcock Wilcox go up and down completely randomly.

Pair Corralation between Morgan Stanley and Babcock Wilcox

Assuming the 90 days horizon Morgan Stanley is expected to generate 0.19 times more return on investment than Babcock Wilcox. However, Morgan Stanley is 5.13 times less risky than Babcock Wilcox. It trades about -0.01 of its potential returns per unit of risk. Babcock Wilcox Enterprises is currently generating about -0.13 per unit of risk. If you would invest  2,575  in Morgan Stanley on October 26, 2024 and sell it today you would lose (12.00) from holding Morgan Stanley or give up 0.47% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

Morgan Stanley  vs.  Babcock Wilcox Enterprises

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. Even with relatively invariable basic indicators, Morgan Stanley is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Babcock Wilcox Enter

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Babcock Wilcox Enterprises has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Preferred Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Morgan Stanley and Babcock Wilcox

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

The idea behind Morgan Stanley and Babcock Wilcox Enterprises 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.