Correlation Between Smead Value and Morgan Stanley

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

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

Diversification Opportunities for Smead Value and Morgan Stanley

-0.73

Correlation Coefficient

Smead Value  Morgan Stanley

Pay attention - limited upside

The 3 months correlation between Smead and Morgan is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Smead Value Fund and Morgan Stanley Government in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morgan Stanley Government and Smead Value 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 Smead Value Fund 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 Government has no effect on the direction of Smead Value i.e., Smead Value and Morgan Stanley go up and down completely randomly.

Pair Corralation between Smead Value and Morgan Stanley

Assuming the 90 days horizon Smead Value Fund is expected to under-perform the Morgan Stanley. In addition to that, Smead Value is 1.1 times more volatile than Morgan Stanley Government. It trades about -0.05 of its total potential returns per unit of risk. Morgan Stanley Government is currently generating about 0.13 per unit of volatility. If you would invest  645.00  in Morgan Stanley Government on December 29, 2024 and sell it today you would earn a total of  45.00  from holding Morgan Stanley Government or generate 6.98% return on investment over 90 days.

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

Smead Value Fund  vs.  Morgan Stanley Government

Smead Value Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days Smead Value Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, Smead Value is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Morgan Stanley Government

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley Government are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Morgan Stanley may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Smead Value and Morgan Stanley

The main advantage of trading using opposite Smead Value and Morgan Stanley positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smead Value 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 Smead Value Fund and Morgan Stanley Government 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.