Correlation Between Morgan Stanley and Microsoft

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

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

Diversification Opportunities for Morgan Stanley and Microsoft

0.45

Correlation Coefficient

Morgan Stanley  Microsoft

Very weak diversification

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

Pair Corralation between Morgan Stanley and Microsoft

Assuming the 90 days trading horizon Morgan Stanley is expected to generate 1.82 times more return on investment than Microsoft. However, Morgan Stanley is 1.82 times more volatile than Microsoft. It trades about -0.09 of its potential returns per unit of risk. Microsoft is currently generating about -0.37 per unit of risk. If you would invest  15,810  in Morgan Stanley on October 15, 2024 and sell it today you would lose (677.00) from holding Morgan Stanley or give up 4.28% of portfolio value over 90 days.

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

Morgan Stanley  vs.  Microsoft

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.

Microsoft

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Morgan Stanley and Microsoft

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

The idea behind Morgan Stanley and Microsoft 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.