Correlation Between Morgan Stanley and TCI

Can any of the company-specific risk be diversified away by investing in both Morgan Stanley and TCI 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 TCI 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 TCI Co, you can compare the effects of market volatilities on Morgan Stanley and TCI 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 TCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Morgan Stanley and TCI.

Diversification Opportunities for Morgan Stanley and TCI

-0.62

Correlation Coefficient

Morgan Stanley  TCI

Excellent diversification

The 3 months correlation between Morgan and TCI is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and TCI Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TCI Co 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 TCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TCI Co has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and TCI go up and down completely randomly.

Pair Corralation between Morgan Stanley and TCI

Given the investment horizon of 90 days Morgan Stanley Direct is expected to under-perform the TCI. But the stock apears to be less risky and, when comparing its historical volatility, Morgan Stanley Direct is 2.54 times less risky than TCI. The stock trades about -0.01 of its potential returns per unit of risk. The TCI Co is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  12,300  in TCI Co on December 28, 2024 and sell it today you would earn a total of  3,200  from holding TCI Co or generate 26.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	91.67%
Values	Daily Returns

Morgan Stanley Direct  vs.  TCI Co

Morgan Stanley Direct

Risk-Adjusted Performance

Very Weak

Over the last 90 days Morgan Stanley Direct has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Morgan Stanley is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

TCI Co

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TCI Co are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, TCI showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Morgan Stanley and TCI

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

The idea behind Morgan Stanley Direct and TCI Co 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.