Correlation Between Morgan Stanley and CAC All

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

Diversification Opportunities for Morgan Stanley and CAC All

-0.29

Correlation Coefficient

Morgan Stanley  CAC All

Very good diversification

The 3 months correlation between Morgan and CAC is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and CAC All Shares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CAC All Shares 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 CAC All. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CAC All Shares has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and CAC All go up and down completely randomly.

Pair Corralation between Morgan Stanley and CAC All

Given the investment horizon of 90 days Morgan Stanley Direct is expected to under-perform the CAC All. In addition to that, Morgan Stanley is 1.07 times more volatile than CAC All Shares. It trades about -0.01 of its total potential returns per unit of risk. CAC All Shares is currently generating about 0.14 per unit of volatility. If you would invest  870,672  in CAC All Shares on December 28, 2024 and sell it today you would earn a total of  67,196  from holding CAC All Shares or generate 7.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Morgan Stanley Direct  vs.  CAC All Shares

Pair Trading with Morgan Stanley and CAC All

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

The idea behind Morgan Stanley Direct and CAC All Shares 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.