Correlation Between Morgan Stanley and Large Cap

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

Diversification Opportunities for Morgan Stanley and Large Cap

0.63

Correlation Coefficient

Morgan Stanley  Large Cap

Poor diversification

The 3 months correlation between Morgan and Large is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and Large Cap Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap Equity 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 Large Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Cap Equity has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Large Cap go up and down completely randomly.

Pair Corralation between Morgan Stanley and Large Cap

Given the investment horizon of 90 days Morgan Stanley is expected to generate 1.69 times less return on investment than Large Cap. In addition to that, Morgan Stanley is 2.05 times more volatile than Large Cap Equity. It trades about 0.03 of its total potential returns per unit of risk. Large Cap Equity is currently generating about 0.11 per unit of volatility. If you would invest  1,758  in Large Cap Equity on September 20, 2024 and sell it today you would earn a total of  919.00  from holding Large Cap Equity or generate 52.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	46.26%
Values	Daily Returns

Morgan Stanley Direct  vs.  Large Cap Equity

Morgan Stanley Direct

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley Direct are ranked lower than 8 (%) 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.

Large Cap Equity

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap Equity are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Large Cap 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 Large Cap

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

The idea behind Morgan Stanley Direct and Large Cap Equity 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.