Correlation Between Bank of America and Morgan Stanley
Can any of the company-specific risk be diversified away by investing in both Bank of America 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 Bank of America and Morgan Stanley into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bank of America and Morgan Stanley, you can compare the effects of market volatilities on Bank of America 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 Bank of America with a short position of Morgan Stanley. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Morgan Stanley.
Diversification Opportunities for Bank of America and Morgan Stanley
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Bank and Morgan is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Morgan Stanley in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morgan Stanley and Bank of America 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 Bank of America 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 has no effect on the direction of Bank of America i.e., Bank of America and Morgan Stanley go up and down completely randomly.
Pair Corralation between Bank of America and Morgan Stanley
Assuming the 90 days trading horizon Bank of America is expected to generate 0.94 times more return on investment than Morgan Stanley. However, Bank of America is 1.06 times less risky than Morgan Stanley. It trades about 0.04 of its potential returns per unit of risk. Morgan Stanley is currently generating about 0.04 per unit of risk. If you would invest 1,591 in Bank of America on August 24, 2024 and sell it today you would earn a total of 287.00 from holding Bank of America or generate 18.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of America vs. Morgan Stanley
Performance |
| Timeline |
| Bank of America |
| Morgan Stanley |
Bank of America and Morgan Stanley Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Morgan Stanley
The main advantage of trading using opposite Bank of America and Morgan Stanley positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America 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.| Bank of America vs. JPMorgan Chase Co | Bank of America vs. JPMorgan Chase Co | Bank of America vs. Wells Fargo | Bank of America vs. Wells Fargo |
| Morgan Stanley vs. Bank of America | Morgan Stanley vs. JPMorgan Chase Co | Morgan Stanley vs. Wells Fargo | Morgan Stanley vs. JPMorgan Chase Co |
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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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