Correlation Between Steel Dynamics and Morgan Stanley

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

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

Diversification Opportunities for Steel Dynamics and Morgan Stanley

0.79

Correlation Coefficient

Steel Dynamics  Morgan Stanley

Poor diversification

The 3 months correlation between Steel and Morgan is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Morgan Stanley ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morgan Stanley ETF and Steel Dynamics 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 Steel Dynamics 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 ETF has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Morgan Stanley go up and down completely randomly.

Pair Corralation between Steel Dynamics and Morgan Stanley

Given the investment horizon of 90 days Steel Dynamics is expected to generate 9.71 times more return on investment than Morgan Stanley. However, Steel Dynamics is 9.71 times more volatile than Morgan Stanley ETF. It trades about 0.08 of its potential returns per unit of risk. Morgan Stanley ETF is currently generating about 0.14 per unit of risk. If you would invest  11,662  in Steel Dynamics on December 25, 2024 and sell it today you would earn a total of  1,004  from holding Steel Dynamics or generate 8.61% return on investment over 90 days.

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

Steel Dynamics  vs.  Morgan Stanley ETF

Steel Dynamics

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile essential indicators, Steel Dynamics may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Morgan Stanley ETF

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley ETF are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical indicators, Morgan Stanley is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Steel Dynamics and Morgan Stanley

The main advantage of trading using opposite Steel Dynamics and Morgan Stanley positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Steel Dynamics 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 Steel Dynamics and Morgan Stanley ETF 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.