Correlation Between Morgan Stanley and SJM Holdings

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

Diversification Opportunities for Morgan Stanley and SJM Holdings

-0.31

Correlation Coefficient

Morgan Stanley  SJM Holdings

Very good diversification

The 3 months correlation between Morgan and SJM is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and SJM Holdings Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SJM Holdings 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 SJM Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SJM Holdings has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and SJM Holdings go up and down completely randomly.

Pair Corralation between Morgan Stanley and SJM Holdings

Given the investment horizon of 90 days Morgan Stanley is expected to generate 2.96 times less return on investment than SJM Holdings. But when comparing it to its historical volatility, Morgan Stanley Direct is 7.38 times less risky than SJM Holdings. It trades about 0.15 of its potential returns per unit of risk. SJM Holdings Ltd is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  98.00  in SJM Holdings Ltd on September 14, 2024 and sell it today you would earn a total of  12.00  from holding SJM Holdings Ltd or generate 12.24% return on investment over 90 days.

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

Morgan Stanley Direct  vs.  SJM Holdings Ltd

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.

SJM Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SJM Holdings Ltd are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical indicators, SJM Holdings showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Morgan Stanley and SJM Holdings

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

The idea behind Morgan Stanley Direct and SJM Holdings Ltd 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.