Correlation Between GM and Morgan Stanley
Can any of the company-specific risk be diversified away by investing in both GM 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 GM and Morgan Stanley into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Morgan Stanley, you can compare the effects of market volatilities on GM 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 GM with a short position of Morgan Stanley. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Morgan Stanley.
Diversification Opportunities for GM and Morgan Stanley
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between GM and Morgan is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Morgan Stanley in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morgan Stanley and GM 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 General Motors 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 GM i.e., GM and Morgan Stanley go up and down completely randomly.
Pair Corralation between GM and Morgan Stanley
Allowing for the 90-day total investment horizon GM is expected to generate 1.32 times less return on investment than Morgan Stanley. But when comparing it to its historical volatility, General Motors is 1.02 times less risky than Morgan Stanley. It trades about 0.11 of its potential returns per unit of risk. Morgan Stanley is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 7,649 in Morgan Stanley on August 25, 2024 and sell it today you would earn a total of 5,253 from holding Morgan Stanley or generate 68.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 98.96% |
| Values | Daily Returns |
General Motors vs. Morgan Stanley
Performance |
| Timeline |
| General Motors |
| Morgan Stanley |
GM and Morgan Stanley Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Morgan Stanley
The main advantage of trading using opposite GM and Morgan Stanley positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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 General Motors and Morgan Stanley 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.| Morgan Stanley vs. TITANIUM TRANSPORTGROUP | Morgan Stanley vs. TEXAS ROADHOUSE | Morgan Stanley vs. Ribbon Communications | Morgan Stanley vs. BROADSTNET LEADL 00025 |
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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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