Correlation Between Morgan Stanley and FS Credit

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

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

Diversification Opportunities for Morgan Stanley and FS Credit

-0.26

Correlation Coefficient

Morgan Stanley  FS Credit

Very good diversification

The 3 months correlation between Morgan and FSCO is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley and FS Credit Opportunities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FS Credit Opportunities 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 FS Credit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FS Credit Opportunities has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and FS Credit go up and down completely randomly.

Pair Corralation between Morgan Stanley and FS Credit

Allowing for the 90-day total investment horizon Morgan Stanley is expected to under-perform the FS Credit. In addition to that, Morgan Stanley is 2.45 times more volatile than FS Credit Opportunities. It trades about -0.01 of its total potential returns per unit of risk. FS Credit Opportunities is currently generating about 0.16 per unit of volatility. If you would invest  649.00  in FS Credit Opportunities on December 27, 2024 and sell it today you would earn a total of  55.00  from holding FS Credit Opportunities or generate 8.47% return on investment over 90 days.

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

Morgan Stanley  vs.  FS Credit Opportunities

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.

FS Credit Opportunities

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FS Credit Opportunities are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent fundamental indicators, FS Credit may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Morgan Stanley and FS Credit

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

The idea behind Morgan Stanley and FS Credit Opportunities 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.