Correlation Between CECO Environmental and Morgan Stanley
Can any of the company-specific risk be diversified away by investing in both CECO Environmental 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 CECO Environmental and Morgan Stanley into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CECO Environmental Corp and Morgan Stanley Direct, you can compare the effects of market volatilities on CECO Environmental 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 CECO Environmental with a short position of Morgan Stanley. Check out your portfolio center. Please also check ongoing floating volatility patterns of CECO Environmental and Morgan Stanley.
Diversification Opportunities for CECO Environmental and Morgan Stanley
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between CECO and Morgan is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding CECO Environmental Corp and Morgan Stanley Direct in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morgan Stanley Direct and CECO Environmental 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 CECO Environmental Corp 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 Direct has no effect on the direction of CECO Environmental i.e., CECO Environmental and Morgan Stanley go up and down completely randomly.
Pair Corralation between CECO Environmental and Morgan Stanley
Given the investment horizon of 90 days CECO Environmental Corp is expected to generate 3.59 times more return on investment than Morgan Stanley. However, CECO Environmental is 3.59 times more volatile than Morgan Stanley Direct. It trades about 0.09 of its potential returns per unit of risk. Morgan Stanley Direct is currently generating about 0.14 per unit of risk. If you would invest 2,618 in CECO Environmental Corp on September 22, 2024 and sell it today you would earn a total of 331.00 from holding CECO Environmental Corp or generate 12.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
CECO Environmental Corp vs. Morgan Stanley Direct
Performance |
| Timeline |
| CECO Environmental Corp |
| Morgan Stanley Direct |
CECO Environmental and Morgan Stanley Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CECO Environmental and Morgan Stanley
The main advantage of trading using opposite CECO Environmental and Morgan Stanley positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CECO Environmental 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.| CECO Environmental vs. Federal Signal | CECO Environmental vs. Zurn Elkay Water | CECO Environmental vs. Fuel Tech | CECO Environmental vs. Energy Recovery |
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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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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