Correlation Between Vanguard Value and Morgan Stanley

Can any of the company-specific risk be diversified away by investing in both Vanguard 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 Vanguard 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 Vanguard Value Factor and Morgan Stanley ETF, you can compare the effects of market volatilities on Vanguard 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 Vanguard Value with a short position of Morgan Stanley. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Value and Morgan Stanley.

Diversification Opportunities for Vanguard Value and Morgan Stanley

0.88

Correlation Coefficient

Vanguard Value  Morgan Stanley

Very poor diversification

The 3 months correlation between Vanguard and Morgan is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Value Factor 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 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 Vanguard Value Factor 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 Value i.e., Vanguard Value and Morgan Stanley go up and down completely randomly.

Pair Corralation between Vanguard Value and Morgan Stanley

Given the investment horizon of 90 days Vanguard Value Factor is expected to generate 1.01 times more return on investment than Morgan Stanley. However, Vanguard Value is 1.01 times more volatile than Morgan Stanley ETF. It trades about -0.03 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  11,880  in Vanguard Value Factor on December 26, 2024 and sell it today you would lose (244.00) from holding Vanguard Value Factor or give up 2.05% of portfolio value over 90 days.

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

Vanguard Value Factor  vs.  Morgan Stanley ETF

Vanguard Value Factor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Value Factor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Vanguard Value 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

Very Weak

Over the last 90 days Morgan Stanley ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary 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 Value and Morgan Stanley

The main advantage of trading using opposite Vanguard Value and Morgan Stanley positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard 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 Vanguard Value Factor 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 Valuation module to check real value of public entities based on technical and fundamental data.