Correlation Between Morgan Stanley and BMO MSCI

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

Diversification Opportunities for Morgan Stanley and BMO MSCI

0.36

Correlation Coefficient

Morgan Stanley  BMO MSCI

Weak diversification

The 3 months correlation between Morgan and BMO is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and BMO MSCI USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO MSCI USA 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 BMO MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO MSCI USA has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and BMO MSCI go up and down completely randomly.

Pair Corralation between Morgan Stanley and BMO MSCI

Given the investment horizon of 90 days Morgan Stanley Direct is expected to generate 1.28 times more return on investment than BMO MSCI. However, Morgan Stanley is 1.28 times more volatile than BMO MSCI USA. It trades about -0.15 of its potential returns per unit of risk. BMO MSCI USA is currently generating about -0.31 per unit of risk. If you would invest  2,099  in Morgan Stanley Direct on December 5, 2024 and sell it today you would lose (58.00) from holding Morgan Stanley Direct or give up 2.76% of portfolio value over 90 days.

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

Morgan Stanley Direct  vs.  BMO MSCI USA

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 current stock price mess, may contribute to short-term losses for the institutional investors.

BMO MSCI USA

Risk-Adjusted Performance

Very Weak

Over the last 90 days BMO MSCI USA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, BMO MSCI is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Morgan Stanley and BMO MSCI

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

The idea behind Morgan Stanley Direct and BMO MSCI USA 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.

Check out your portfolio center.

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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.