Correlation Between Morgan Stanley and Scully Royalty

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

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

Diversification Opportunities for Morgan Stanley and Scully Royalty

-0.45

Correlation Coefficient

Morgan Stanley  Scully Royalty

Very good diversification

The 3 months correlation between Morgan and Scully is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley and Scully Royalty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scully Royalty 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 Scully Royalty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scully Royalty has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Scully Royalty go up and down completely randomly.

Pair Corralation between Morgan Stanley and Scully Royalty

Allowing for the 90-day total investment horizon Morgan Stanley is expected to generate 0.37 times more return on investment than Scully Royalty. However, Morgan Stanley is 2.72 times less risky than Scully Royalty. It trades about -0.2 of its potential returns per unit of risk. Scully Royalty is currently generating about -0.19 per unit of risk. If you would invest  13,243  in Morgan Stanley on September 15, 2024 and sell it today you would lose (503.00) from holding Morgan Stanley or give up 3.8% of portfolio value over 90 days.

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

Morgan Stanley  vs.  Scully Royalty

Morgan Stanley

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Morgan Stanley unveiled solid returns over the last few months and may actually be approaching a breakup point.

Scully Royalty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Scully Royalty has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Morgan Stanley and Scully Royalty

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

The idea behind Morgan Stanley and Scully Royalty 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.