Correlation Between Morgan Stanley and Western Digital

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

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

Diversification Opportunities for Morgan Stanley and Western Digital

0.79

Correlation Coefficient

Morgan Stanley  Western Digital

Poor diversification

The 3 months correlation between Morgan and Western is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley and Western Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Digital 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 Western Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Digital has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Western Digital go up and down completely randomly.

Pair Corralation between Morgan Stanley and Western Digital

Assuming the 90 days horizon Morgan Stanley is expected to generate 0.55 times more return on investment than Western Digital. However, Morgan Stanley is 1.83 times less risky than Western Digital. It trades about -0.01 of its potential returns per unit of risk. Western Digital is currently generating about -0.15 per unit of risk. If you would invest  256,165  in Morgan Stanley on December 27, 2024 and sell it today you would lose (6,165) from holding Morgan Stanley or give up 2.41% of portfolio value over 90 days.

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

Morgan Stanley  vs.  Western Digital

Morgan Stanley

Risk-Adjusted Performance

Very Weak

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

Western Digital

Risk-Adjusted Performance

Very Weak

Over the last 90 days Western Digital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Morgan Stanley and Western Digital

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

The idea behind Morgan Stanley and Western Digital 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.