Correlation Between Morgan Stanley and Dignitana

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

Diversification Opportunities for Morgan Stanley and Dignitana

0.29

Correlation Coefficient

Morgan Stanley  Dignitana

Modest diversification

The 3 months correlation between Morgan and Dignitana is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and Dignitana AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dignitana AB 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 Dignitana. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dignitana AB has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Dignitana go up and down completely randomly.

Pair Corralation between Morgan Stanley and Dignitana

Given the investment horizon of 90 days Morgan Stanley Direct is expected to under-perform the Dignitana. But the stock apears to be less risky and, when comparing its historical volatility, Morgan Stanley Direct is 8.99 times less risky than Dignitana. The stock trades about -0.15 of its potential returns per unit of risk. The Dignitana AB is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  115.00  in Dignitana AB on December 4, 2024 and sell it today you would lose (8.00) from holding Dignitana AB or give up 6.96% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Morgan Stanley Direct  vs.  Dignitana AB

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.

Dignitana AB

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dignitana AB are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Dignitana unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Morgan Stanley and Dignitana

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

The idea behind Morgan Stanley Direct and Dignitana AB 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.