Correlation Between Morgan Stanley and Body One

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

Diversification Opportunities for Morgan Stanley and Body One

0.05

Correlation Coefficient

Morgan Stanley  Body One

Significant diversification

The 3 months correlation between Morgan and Body is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and Body One SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Body One SA 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 Body One. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Body One SA has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Body One go up and down completely randomly.

Pair Corralation between Morgan Stanley and Body One

Given the investment horizon of 90 days Morgan Stanley is expected to generate 1.39 times less return on investment than Body One. But when comparing it to its historical volatility, Morgan Stanley Direct is 4.8 times less risky than Body One. It trades about 0.16 of its potential returns per unit of risk. Body One SA is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  30.00  in Body One SA on September 17, 2024 and sell it today you would earn a total of  2.00  from holding Body One SA or generate 6.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Morgan Stanley Direct  vs.  Body One SA

Morgan Stanley Direct

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley Direct are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile fundamental indicators, Morgan Stanley may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Body One SA

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Body One SA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Body One reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Morgan Stanley and Body One

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

The idea behind Morgan Stanley Direct and Body One SA 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.