Correlation Between Morgan Stanley and Merrill Lynch

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

Diversification Opportunities for Morgan Stanley and Merrill Lynch

0.39

Correlation Coefficient

Morgan Stanley  Merrill Lynch

Weak diversification

The 3 months correlation between Morgan and Merrill is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and Merrill Lynch in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merrill Lynch 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 Merrill Lynch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merrill Lynch has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Merrill Lynch go up and down completely randomly.

Pair Corralation between Morgan Stanley and Merrill Lynch

Given the investment horizon of 90 days Morgan Stanley Direct is expected to generate 0.09 times more return on investment than Merrill Lynch. However, Morgan Stanley Direct is 11.26 times less risky than Merrill Lynch. It trades about 0.04 of its potential returns per unit of risk. Merrill Lynch is currently generating about -0.18 per unit of risk. If you would invest  1,907  in Morgan Stanley Direct on September 29, 2024 and sell it today you would earn a total of  228.00  from holding Morgan Stanley Direct or generate 11.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	12.77%
Values	Daily Returns

Morgan Stanley Direct  vs.  Merrill Lynch

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

Merrill Lynch

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merrill Lynch has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Merrill Lynch is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Morgan Stanley and Merrill Lynch

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

The idea behind Morgan Stanley Direct and Merrill Lynch 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.