Correlation Between Morgan Stanley and Eli Lilly

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

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

Diversification Opportunities for Morgan Stanley and Eli Lilly

-0.64

Correlation Coefficient

Morgan Stanley  Eli Lilly

Excellent diversification

The 3 months correlation between Morgan and Eli is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley and Eli Lilly and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eli Lilly 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 Eli Lilly. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eli Lilly has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Eli Lilly go up and down completely randomly.

Pair Corralation between Morgan Stanley and Eli Lilly

Assuming the 90 days trading horizon Morgan Stanley is expected to generate 0.99 times more return on investment than Eli Lilly. However, Morgan Stanley is 1.01 times less risky than Eli Lilly. It trades about 0.26 of its potential returns per unit of risk. Eli Lilly and is currently generating about -0.01 per unit of risk. If you would invest  11,088  in Morgan Stanley on September 5, 2024 and sell it today you would earn a total of  4,911  from holding Morgan Stanley or generate 44.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Morgan Stanley  vs.  Eli Lilly and

Morgan Stanley

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Morgan Stanley sustained solid returns over the last few months and may actually be approaching a breakup point.

Eli Lilly

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eli Lilly and has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, Eli Lilly is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Morgan Stanley and Eli Lilly

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

The idea behind Morgan Stanley and Eli Lilly and 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..