Correlation Between Morgan Stanley and American Express

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

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

Diversification Opportunities for Morgan Stanley and American Express

0.72

Correlation Coefficient

Morgan Stanley  American Express

Poor diversification

The 3 months correlation between Morgan and American is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley and American Express in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Express 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 American Express. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Express has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and American Express go up and down completely randomly.

Pair Corralation between Morgan Stanley and American Express

Allowing for the 90-day total investment horizon Morgan Stanley is expected to generate 1.17 times more return on investment than American Express. However, Morgan Stanley is 1.17 times more volatile than American Express. It trades about 0.0 of its potential returns per unit of risk. American Express is currently generating about -0.04 per unit of risk. If you would invest  13,074  in Morgan Stanley on November 28, 2024 and sell it today you would lose (114.00) from holding Morgan Stanley or give up 0.87% 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.  American Express

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.

American Express

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Express has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, American Express is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Morgan Stanley and American Express

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

The idea behind Morgan Stanley and American Express 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.