Correlation Between Morgan Stanley and MetLife

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

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

Diversification Opportunities for Morgan Stanley and MetLife

0.81

Correlation Coefficient

Morgan Stanley  MetLife

Very poor diversification

The 3 months correlation between Morgan and MetLife is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley and MetLife in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MetLife 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 MetLife. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MetLife has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and MetLife go up and down completely randomly.

Pair Corralation between Morgan Stanley and MetLife

Assuming the 90 days trading horizon Morgan Stanley is expected to under-perform the MetLife. In addition to that, Morgan Stanley is 2.75 times more volatile than MetLife. It trades about -0.09 of its total potential returns per unit of risk. MetLife is currently generating about 0.04 per unit of volatility. If you would invest  50,700  in MetLife on October 15, 2024 and sell it today you would earn a total of  263.00  from holding MetLife or generate 0.52% 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.  MetLife

Morgan Stanley

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley are ranked lower than 10 (%) 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.

MetLife

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MetLife are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, MetLife may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Morgan Stanley and MetLife

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

The idea behind Morgan Stanley and MetLife 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.