Correlation Between IShares Broad and Morgan Stanley

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

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

Diversification Opportunities for IShares Broad and Morgan Stanley

0.98

Correlation Coefficient

IShares Broad  Morgan Stanley

Almost no diversification

The 3 months correlation between IShares and Morgan is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding iShares Broad USD 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 IShares Broad 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 iShares Broad USD 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 IShares Broad i.e., IShares Broad and Morgan Stanley go up and down completely randomly.

Pair Corralation between IShares Broad and Morgan Stanley

Given the investment horizon of 90 days IShares Broad is expected to generate 1.26 times less return on investment than Morgan Stanley. In addition to that, IShares Broad is 1.18 times more volatile than Morgan Stanley ETF. It trades about 0.07 of its total potential returns per unit of risk. Morgan Stanley ETF is currently generating about 0.11 per unit of volatility. If you would invest  5,177  in Morgan Stanley ETF on December 28, 2024 and sell it today you would earn a total of  73.00  from holding Morgan Stanley ETF or generate 1.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.36%
Values	Daily Returns

iShares Broad USD  vs.  Morgan Stanley ETF

iShares Broad USD

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Broad USD are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical indicators, IShares Broad is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 8 (%) 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 IShares Broad and Morgan Stanley

The main advantage of trading using opposite IShares Broad and Morgan Stanley positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Broad 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 iShares Broad USD 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.