Correlation Between Morgan Stanley and Newtek Business

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

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

Diversification Opportunities for Morgan Stanley and Newtek Business

0.68

Correlation Coefficient

Morgan Stanley  Newtek Business

Poor diversification

The 3 months correlation between Morgan and Newtek is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and Newtek Business Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Newtek Business Services 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 Direct are associated (or correlated) with Newtek Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Newtek Business Services has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Newtek Business go up and down completely randomly.

Pair Corralation between Morgan Stanley and Newtek Business

Given the investment horizon of 90 days Morgan Stanley Direct is expected to generate 0.79 times more return on investment than Newtek Business. However, Morgan Stanley Direct is 1.26 times less risky than Newtek Business. It trades about 0.1 of its potential returns per unit of risk. Newtek Business Services is currently generating about -0.45 per unit of risk. If you would invest  2,074  in Morgan Stanley Direct on September 27, 2024 and sell it today you would earn a total of  46.00  from holding Morgan Stanley Direct or generate 2.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Morgan Stanley Direct  vs.  Newtek Business Services

Morgan Stanley Direct

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley Direct are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain fundamental indicators, Morgan Stanley may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Newtek Business Services

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Newtek Business Services are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Newtek Business reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Morgan Stanley and Newtek Business

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

The idea behind Morgan Stanley Direct and Newtek Business Services 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.