Correlation Between Morgan Stanley and Principal Lifetime

Can any of the company-specific risk be diversified away by investing in both Morgan Stanley and Principal Lifetime 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 Principal Lifetime 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 Principal Lifetime 2040, you can compare the effects of market volatilities on Morgan Stanley and Principal Lifetime 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 Principal Lifetime. Check out your portfolio center. Please also check ongoing floating volatility patterns of Morgan Stanley and Principal Lifetime.

Diversification Opportunities for Morgan Stanley and Principal Lifetime

0.4

Correlation Coefficient

Morgan Stanley  Principal Lifetime

Very weak diversification

The 3 months correlation between Morgan and Principal is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and Principal Lifetime 2040 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Lifetime 2040 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 Principal Lifetime. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Lifetime 2040 has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Principal Lifetime go up and down completely randomly.

Pair Corralation between Morgan Stanley and Principal Lifetime

Given the investment horizon of 90 days Morgan Stanley Direct is expected to generate 1.97 times more return on investment than Principal Lifetime. However, Morgan Stanley is 1.97 times more volatile than Principal Lifetime 2040. It trades about 0.11 of its potential returns per unit of risk. Principal Lifetime 2040 is currently generating about 0.08 per unit of risk. If you would invest  1,943  in Morgan Stanley Direct on October 7, 2024 and sell it today you would earn a total of  139.00  from holding Morgan Stanley Direct or generate 7.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	58.73%
Values	Daily Returns

Morgan Stanley Direct  vs.  Principal Lifetime 2040

Morgan Stanley Direct

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley Direct are ranked lower than 9 (%) 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 February 2025.

Principal Lifetime 2040

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Principal Lifetime 2040 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Principal Lifetime 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 Principal Lifetime

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

The idea behind Morgan Stanley Direct and Principal Lifetime 2040 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.