Correlation Between Morgan Stanley and Putnam Small

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

Diversification Opportunities for Morgan Stanley and Putnam Small

0.24

Correlation Coefficient

Morgan Stanley  Putnam Small

Modest diversification

The 3 months correlation between Morgan and Putnam is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and Putnam Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Putnam Small Cap 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 Putnam Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Putnam Small Cap has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Putnam Small go up and down completely randomly.

Pair Corralation between Morgan Stanley and Putnam Small

Given the investment horizon of 90 days Morgan Stanley is expected to generate 1.78 times less return on investment than Putnam Small. In addition to that, Morgan Stanley is 1.33 times more volatile than Putnam Small Cap. It trades about 0.04 of its total potential returns per unit of risk. Putnam Small Cap is currently generating about 0.09 per unit of volatility. If you would invest  4,508  in Putnam Small Cap on October 3, 2024 and sell it today you would earn a total of  1,383  from holding Putnam Small Cap or generate 30.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	88.76%
Values	Daily Returns

Morgan Stanley Direct  vs.  Putnam Small Cap

Morgan Stanley Direct

Risk-Adjusted Performance

8 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley Direct are ranked lower than 8 (%) 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 February 2025.

Putnam Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Putnam Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Putnam Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Morgan Stanley and Putnam Small

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

The idea behind Morgan Stanley Direct and Putnam Small Cap 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.