Correlation Between Morgan Stanley and American Funds

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Can any of the company-specific risk be diversified away by investing in both Morgan Stanley and American Funds 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 Morgan Stanley and American Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Morgan Stanley Global and American Funds Retirement, you can compare the effects of market volatilities on Morgan Stanley and American Funds 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 Morgan Stanley with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Morgan Stanley and American Funds.

Diversification Opportunities for Morgan Stanley and American Funds

0.37
  Correlation Coefficient

Weak diversification

The 3 months correlation between Morgan and American is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Global and American Funds Retirement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Retirement and Morgan Stanley 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 Morgan Stanley Global are associated (or correlated) with American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Retirement has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and American Funds go up and down completely randomly.

Pair Corralation between Morgan Stanley and American Funds

Assuming the 90 days horizon Morgan Stanley Global is expected to generate 2.3 times more return on investment than American Funds. However, Morgan Stanley is 2.3 times more volatile than American Funds Retirement. It trades about 0.31 of its potential returns per unit of risk. American Funds Retirement is currently generating about 0.07 per unit of risk. If you would invest  1,303  in Morgan Stanley Global on August 28, 2024 and sell it today you would earn a total of  74.00  from holding Morgan Stanley Global or generate 5.68% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Morgan Stanley Global  vs.  American Funds Retirement

 Performance 
       Timeline  
Morgan Stanley Global 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley Global are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Morgan Stanley is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
American Funds Retirement 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in American Funds Retirement are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Morgan Stanley and American Funds Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Morgan Stanley and American Funds

The main advantage of trading using opposite Morgan Stanley and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Morgan Stanley position performs unexpectedly, American Funds 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 American Funds will offset losses from the drop in American Funds' long position.
The idea behind Morgan Stanley Global and American Funds Retirement 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.

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