Correlation Between Morgan Stanley and Alliance Recovery

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

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

Diversification Opportunities for Morgan Stanley and Alliance Recovery

-0.46

Correlation Coefficient

Morgan Stanley  Alliance Recovery

Very good diversification

The 3 months correlation between Morgan and Alliance is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley and Alliance Recovery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alliance Recovery 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 Alliance Recovery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alliance Recovery has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Alliance Recovery go up and down completely randomly.

Pair Corralation between Morgan Stanley and Alliance Recovery

Allowing for the 90-day total investment horizon Morgan Stanley is expected to under-perform the Alliance Recovery. But the stock apears to be less risky and, when comparing its historical volatility, Morgan Stanley is 5.11 times less risky than Alliance Recovery. The stock trades about -0.01 of its potential returns per unit of risk. The Alliance Recovery is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  0.21  in Alliance Recovery on December 21, 2024 and sell it today you would earn a total of  0.06  from holding Alliance Recovery or generate 28.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	93.65%
Values	Daily Returns

Morgan Stanley  vs.  Alliance Recovery

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 comparatively stable basic indicators, Morgan Stanley is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Alliance Recovery

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Recovery are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Alliance Recovery showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Morgan Stanley and Alliance Recovery

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

The idea behind Morgan Stanley and Alliance Recovery 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.