Correlation Between Absolute Convertible and Morgan Stanley
Can any of the company-specific risk be diversified away by investing in both Absolute Convertible 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 Absolute Convertible and Morgan Stanley into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Absolute Convertible Arbitrage and Morgan Stanley European, you can compare the effects of market volatilities on Absolute Convertible 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 Absolute Convertible with a short position of Morgan Stanley. Check out your portfolio center. Please also check ongoing floating volatility patterns of Absolute Convertible and Morgan Stanley.
Diversification Opportunities for Absolute Convertible and Morgan Stanley
-0.33 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Absolute and Morgan is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Absolute Convertible Arbitrage and Morgan Stanley European in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morgan Stanley European and Absolute Convertible 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 Absolute Convertible Arbitrage 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 European has no effect on the direction of Absolute Convertible i.e., Absolute Convertible and Morgan Stanley go up and down completely randomly.
Pair Corralation between Absolute Convertible and Morgan Stanley
Assuming the 90 days horizon Absolute Convertible is expected to generate 3.55 times less return on investment than Morgan Stanley. But when comparing it to its historical volatility, Absolute Convertible Arbitrage is 13.08 times less risky than Morgan Stanley. It trades about 0.49 of its potential returns per unit of risk. Morgan Stanley European is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 2,252 in Morgan Stanley European on October 24, 2024 and sell it today you would earn a total of 42.00 from holding Morgan Stanley European or generate 1.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Absolute Convertible Arbitrage vs. Morgan Stanley European
Performance |
| Timeline |
| Absolute Convertible |
| Morgan Stanley European |
Absolute Convertible and Morgan Stanley Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Absolute Convertible and Morgan Stanley
The main advantage of trading using opposite Absolute Convertible and Morgan Stanley positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Absolute Convertible 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.| Absolute Convertible vs. Science Technology Fund | Absolute Convertible vs. Vanguard Information Technology | Absolute Convertible vs. Hennessy Technology Fund | Absolute Convertible vs. Red Oak Technology |
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Check out your portfolio center.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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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