Correlation Between Morgan Stanley and First Community

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

Diversification Opportunities for Morgan Stanley and First Community

-0.3

Correlation Coefficient

Morgan Stanley  First Community

Very good diversification

The 3 months correlation between Morgan and First is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and First Community Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Community Banc 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 First Community. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Community Banc has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and First Community go up and down completely randomly.

Pair Corralation between Morgan Stanley and First Community

Given the investment horizon of 90 days Morgan Stanley Direct is expected to generate 0.48 times more return on investment than First Community. However, Morgan Stanley Direct is 2.09 times less risky than First Community. It trades about -0.03 of its potential returns per unit of risk. First Community Bancshares is currently generating about -0.1 per unit of risk. If you would invest  2,052  in Morgan Stanley Direct on December 5, 2024 and sell it today you would lose (38.25) from holding Morgan Stanley Direct or give up 1.86% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Morgan Stanley Direct  vs.  First Community Bancshares

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.

First Community Banc

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Community Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's fundamental drivers remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Morgan Stanley and First Community

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

The idea behind Morgan Stanley Direct and First Community Bancshares 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.