Correlation Between Morgan Stanley and American Funds

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

Diversification Opportunities for Morgan Stanley and American Funds

-0.11

Correlation Coefficient

Morgan Stanley  American Funds

Good diversification

The 3 months correlation between Morgan and American is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and American Funds Fundamental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Funda 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 American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Funda has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and American Funds go up and down completely randomly.

Pair Corralation between Morgan Stanley and American Funds

Given the investment horizon of 90 days Morgan Stanley is expected to generate 1.07 times less return on investment than American Funds. In addition to that, Morgan Stanley is 1.69 times more volatile than American Funds Fundamental. It trades about 0.03 of its total potential returns per unit of risk. American Funds Fundamental is currently generating about 0.06 per unit of volatility. If you would invest  6,229  in American Funds Fundamental on October 13, 2024 and sell it today you would earn a total of  1,819  from holding American Funds Fundamental or generate 29.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	49.29%
Values	Daily Returns

Morgan Stanley Direct  vs.  American Funds Fundamental

Morgan Stanley Direct

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley Direct are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, Morgan Stanley is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

American Funds Funda

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Funds Fundamental has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Morgan Stanley and American Funds

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

The idea behind Morgan Stanley Direct and American Funds Fundamental 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.