Correlation Between Morgan Stanley and American States

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

Diversification Opportunities for Morgan Stanley and American States

0.62

Correlation Coefficient

Morgan Stanley  American States

Poor diversification

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

Pair Corralation between Morgan Stanley and American States

Given the investment horizon of 90 days Morgan Stanley Direct is expected to generate 0.91 times more return on investment than American States. However, Morgan Stanley Direct is 1.09 times less risky than American States. It trades about 0.05 of its potential returns per unit of risk. American States Water is currently generating about -0.18 per unit of risk. If you would invest  2,063  in Morgan Stanley Direct on September 22, 2024 and sell it today you would earn a total of  21.00  from holding Morgan Stanley Direct or generate 1.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	91.3%
Values	Daily Returns

Morgan Stanley Direct  vs.  American States Water

Morgan Stanley Direct

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley Direct are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating fundamental indicators, Morgan Stanley may actually be approaching a critical reversion point that can send shares even higher in January 2025.

American States Water

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American States Water are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, American States is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Morgan Stanley and American States

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

The idea behind Morgan Stanley Direct and American States Water 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.