Correlation Between Morgan Stanley and Small Cap

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

Diversification Opportunities for Morgan Stanley and Small Cap

0.22

Correlation Coefficient

Morgan Stanley  Small Cap

Modest diversification

The 3 months correlation between Morgan and Small is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and Small Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Value 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 Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Value has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Small Cap go up and down completely randomly.

Pair Corralation between Morgan Stanley and Small Cap

Given the investment horizon of 90 days Morgan Stanley Direct is expected to generate 1.33 times more return on investment than Small Cap. However, Morgan Stanley is 1.33 times more volatile than Small Cap Value. It trades about 0.04 of its potential returns per unit of risk. Small Cap Value is currently generating about 0.02 per unit of risk. If you would invest  1,907  in Morgan Stanley Direct on September 30, 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	47.48%
Values	Daily Returns

Morgan Stanley Direct  vs.  Small Cap Value

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

Small Cap Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Cap Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Morgan Stanley and Small Cap

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

The idea behind Morgan Stanley Direct and Small Cap Value 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.