Correlation Between Morgan Stanley and Power Line

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

Diversification Opportunities for Morgan Stanley and Power Line

-0.64

Correlation Coefficient

Morgan Stanley  Power Line

Excellent diversification

The 3 months correlation between Morgan and Power is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and Power Line Engineering in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Line Engineering 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 Power Line. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Line Engineering has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Power Line go up and down completely randomly.

Pair Corralation between Morgan Stanley and Power Line

Given the investment horizon of 90 days Morgan Stanley is expected to generate 28.0 times less return on investment than Power Line. But when comparing it to its historical volatility, Morgan Stanley Direct is 27.93 times less risky than Power Line. It trades about 0.04 of its potential returns per unit of risk. Power Line Engineering is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  65.00  in Power Line Engineering on September 14, 2024 and sell it today you would lose (30.00) from holding Power Line Engineering or give up 46.15% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	46.88%
Values	Daily Returns

Morgan Stanley Direct  vs.  Power Line Engineering

Morgan Stanley Direct

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley Direct are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite weak fundamental indicators, Morgan Stanley may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Power Line Engineering

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Power Line Engineering has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's technical and fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Morgan Stanley and Power Line

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

The idea behind Morgan Stanley Direct and Power Line Engineering 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.