Correlation Between Morgan Stanley and SPDR Dow

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

Diversification Opportunities for Morgan Stanley and SPDR Dow

0.83

Correlation Coefficient

Morgan Stanley  SPDR Dow

Very poor diversification

The 3 months correlation between Morgan and SPDR is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and SPDR Dow Jones in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Dow Jones 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 SPDR Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Dow Jones has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and SPDR Dow go up and down completely randomly.

Pair Corralation between Morgan Stanley and SPDR Dow

Given the investment horizon of 90 days Morgan Stanley is expected to generate 9.9 times less return on investment than SPDR Dow. In addition to that, Morgan Stanley is 1.18 times more volatile than SPDR Dow Jones. It trades about 0.01 of its total potential returns per unit of risk. SPDR Dow Jones is currently generating about 0.17 per unit of volatility. If you would invest  712,241  in SPDR Dow Jones on September 30, 2024 and sell it today you would earn a total of  163,559  from holding SPDR Dow Jones or generate 22.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	93.65%
Values	Daily Returns

Morgan Stanley Direct  vs.  SPDR Dow Jones

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 abnormal fundamental indicators, Morgan Stanley may actually be approaching a critical reversion point that can send shares even higher in January 2025.

SPDR Dow Jones

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Dow Jones are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, SPDR Dow 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 SPDR Dow

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

The idea behind Morgan Stanley Direct and SPDR Dow Jones 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.