Correlation Between Vanguard FTSE and Morgan Stanley

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

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

Diversification Opportunities for Vanguard FTSE and Morgan Stanley

1.0

Correlation Coefficient

Vanguard FTSE  Morgan Stanley

No risk reduction

The 3 months correlation between Vanguard and Morgan is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE Developed 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 Vanguard FTSE 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 Vanguard FTSE Developed 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 Vanguard FTSE i.e., Vanguard FTSE and Morgan Stanley go up and down completely randomly.

Pair Corralation between Vanguard FTSE and Morgan Stanley

Considering the 90-day investment horizon Vanguard FTSE Developed is expected to generate 0.97 times more return on investment than Morgan Stanley. However, Vanguard FTSE Developed is 1.03 times less risky than Morgan Stanley. It trades about 0.07 of its potential returns per unit of risk. Morgan Stanley ETF is currently generating about 0.07 per unit of risk. If you would invest  4,981  in Vanguard FTSE Developed on December 3, 2024 and sell it today you would earn a total of  164.00  from holding Vanguard FTSE Developed or generate 3.29% return on investment over 90 days.

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

Vanguard FTSE Developed  vs.  Morgan Stanley ETF

Vanguard FTSE Developed

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard FTSE Developed are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Vanguard FTSE is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Morgan Stanley ETF

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley ETF are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound forward indicators, Morgan Stanley is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Vanguard FTSE and Morgan Stanley

The main advantage of trading using opposite Vanguard FTSE and Morgan Stanley positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard FTSE 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 Vanguard FTSE Developed 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.