Correlation Between Morgan Stanley and Balanced Fund

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

Diversification Opportunities for Morgan Stanley and Balanced Fund

0.6

Correlation Coefficient

Morgan Stanley  Balanced Fund

Poor diversification

The 3 months correlation between Morgan and Balanced is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and Balanced Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Balanced Fund Class 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 Balanced Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Balanced Fund Class has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Balanced Fund go up and down completely randomly.

Pair Corralation between Morgan Stanley and Balanced Fund

Given the investment horizon of 90 days Morgan Stanley Direct is expected to generate 1.5 times more return on investment than Balanced Fund. However, Morgan Stanley is 1.5 times more volatile than Balanced Fund Class. It trades about -0.01 of its potential returns per unit of risk. Balanced Fund Class is currently generating about -0.04 per unit of risk. If you would invest  2,083  in Morgan Stanley Direct on December 28, 2024 and sell it today you would lose (18.00) from holding Morgan Stanley Direct or give up 0.86% of portfolio value over 90 days.

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

Morgan Stanley Direct  vs.  Balanced Fund Class

Morgan Stanley Direct

Risk-Adjusted Performance

Very Weak

Over the last 90 days Morgan Stanley Direct has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Morgan Stanley is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Balanced Fund Class

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Morgan Stanley Direct and Balanced Fund Class 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.