Correlation Between STMicroelectronics and Morgan Stanley

Can any of the company-specific risk be diversified away by investing in both STMicroelectronics and Morgan Stanley 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 STMicroelectronics and Morgan Stanley into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between STMicroelectronics NV and Morgan Stanley, you can compare the effects of market volatilities on STMicroelectronics and Morgan Stanley 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 STMicroelectronics with a short position of Morgan Stanley. Check out your portfolio center. Please also check ongoing floating volatility patterns of STMicroelectronics and Morgan Stanley.

Diversification Opportunities for STMicroelectronics and Morgan Stanley

0.01

Correlation Coefficient

STMicroelectronics  Morgan Stanley

Significant diversification

The 3 months correlation between STMicroelectronics and Morgan is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Morgan Stanley in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morgan Stanley and STMicroelectronics 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 STMicroelectronics NV are associated (or correlated) with Morgan Stanley. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Morgan Stanley has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Morgan Stanley go up and down completely randomly.

Pair Corralation between STMicroelectronics and Morgan Stanley

Assuming the 90 days horizon STMicroelectronics NV is expected to under-perform the Morgan Stanley. In addition to that, STMicroelectronics is 1.48 times more volatile than Morgan Stanley. It trades about -0.03 of its total potential returns per unit of risk. Morgan Stanley is currently generating about -0.02 per unit of volatility. If you would invest  12,046  in Morgan Stanley on December 26, 2024 and sell it today you would lose (482.00) from holding Morgan Stanley or give up 4.0% of portfolio value over 90 days.

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

STMicroelectronics NV  vs.  Morgan Stanley

STMicroelectronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days STMicroelectronics NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, STMicroelectronics is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Morgan Stanley

Risk-Adjusted Performance

Very Weak

Over the last 90 days Morgan Stanley has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Morgan Stanley is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with STMicroelectronics and Morgan Stanley

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

The idea behind STMicroelectronics NV and Morgan Stanley 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.