Correlation Between Morgan Stanley and Franklin Resources

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

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

Diversification Opportunities for Morgan Stanley and Franklin Resources

0.88

Correlation Coefficient

Morgan Stanley  Franklin Resources

Very poor diversification

The 3 months correlation between Morgan and Franklin is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley and Franklin Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Resources 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 Franklin Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Resources has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Franklin Resources go up and down completely randomly.

Pair Corralation between Morgan Stanley and Franklin Resources

Allowing for the 90-day total investment horizon Morgan Stanley is expected to generate 1.74 times more return on investment than Franklin Resources. However, Morgan Stanley is 1.74 times more volatile than Franklin Resources. It trades about 0.22 of its potential returns per unit of risk. Franklin Resources is currently generating about 0.34 per unit of risk. If you would invest  11,614  in Morgan Stanley on September 4, 2024 and sell it today you would earn a total of  1,489  from holding Morgan Stanley or generate 12.82% return on investment over 90 days.

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

Morgan Stanley  vs.  Franklin Resources

Morgan Stanley

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Morgan Stanley unveiled solid returns over the last few months and may actually be approaching a breakup point.

Franklin Resources

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Resources are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal technical and fundamental indicators, Franklin Resources displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Morgan Stanley and Franklin Resources

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

The idea behind Morgan Stanley and Franklin Resources 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..