Correlation Between Morgan Stanley and FlexShares Quality

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

Diversification Opportunities for Morgan Stanley and FlexShares Quality

0.81

Correlation Coefficient

Morgan Stanley  FlexShares Quality

Very poor diversification

The 3 months correlation between Morgan and FlexShares is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and FlexShares Quality Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Quality 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 FlexShares Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Quality has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and FlexShares Quality go up and down completely randomly.

Pair Corralation between Morgan Stanley and FlexShares Quality

Given the investment horizon of 90 days Morgan Stanley Direct is expected to under-perform the FlexShares Quality. In addition to that, Morgan Stanley is 2.37 times more volatile than FlexShares Quality Dividend. It trades about 0.0 of its total potential returns per unit of risk. FlexShares Quality Dividend is currently generating about 0.13 per unit of volatility. If you would invest  6,566  in FlexShares Quality Dividend on September 17, 2024 and sell it today you would earn a total of  711.00  from holding FlexShares Quality Dividend or generate 10.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Morgan Stanley Direct  vs.  FlexShares Quality Dividend

Morgan Stanley Direct

Risk-Adjusted Performance

12 of 100

Good

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.

FlexShares Quality

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares Quality Dividend are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, FlexShares Quality is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Morgan Stanley and FlexShares Quality

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

The idea behind Morgan Stanley Direct and FlexShares Quality Dividend 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.