Correlation Between Morgan Stanley and SPDR SP

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

Diversification Opportunities for Morgan Stanley and SPDR SP

0.85

Correlation Coefficient

Morgan Stanley  SPDR SP

Very poor diversification

The 3 months correlation between Morgan and SPDR is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and SPDR SP Regional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Regional 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Regional has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and SPDR SP go up and down completely randomly.

Pair Corralation between Morgan Stanley and SPDR SP

Given the investment horizon of 90 days Morgan Stanley is expected to generate 21.68 times less return on investment than SPDR SP. But when comparing it to its historical volatility, Morgan Stanley Direct is 2.58 times less risky than SPDR SP. It trades about 0.01 of its potential returns per unit of risk. SPDR SP Regional is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  85,154  in SPDR SP Regional on September 30, 2024 and sell it today you would earn a total of  46,006  from holding SPDR SP Regional or generate 54.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Morgan Stanley Direct  vs.  SPDR SP Regional

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.

SPDR SP Regional

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Regional are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, SPDR SP showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Morgan Stanley and SPDR SP

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

The idea behind Morgan Stanley Direct and SPDR SP Regional 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.