Correlation Between MSCI and Morningstar
Can any of the company-specific risk be diversified away by investing in both MSCI and Morningstar 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 MSCI and Morningstar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MSCI Inc and Morningstar, you can compare the effects of market volatilities on MSCI and Morningstar 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 MSCI with a short position of Morningstar. Check out your portfolio center. Please also check ongoing floating volatility patterns of MSCI and Morningstar.
Diversification Opportunities for MSCI and Morningstar
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between MSCI and Morningstar is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding MSCI Inc and Morningstar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morningstar and MSCI 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 MSCI Inc are associated (or correlated) with Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Morningstar has no effect on the direction of MSCI i.e., MSCI and Morningstar go up and down completely randomly.
Pair Corralation between MSCI and Morningstar
Given the investment horizon of 90 days MSCI is expected to generate 1.65 times less return on investment than Morningstar. In addition to that, MSCI is 1.03 times more volatile than Morningstar. It trades about 0.03 of its total potential returns per unit of risk. Morningstar is currently generating about 0.06 per unit of volatility. If you would invest 23,066 in Morningstar on August 30, 2024 and sell it today you would earn a total of 12,499 from holding Morningstar or generate 54.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
MSCI Inc vs. Morningstar
Performance |
| Timeline |
| MSCI Inc |
| Morningstar |
MSCI and Morningstar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MSCI and Morningstar
The main advantage of trading using opposite MSCI and Morningstar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MSCI position performs unexpectedly, Morningstar 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 Morningstar will offset losses from the drop in Morningstar's long position.The idea behind MSCI Inc and Morningstar 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.| Morningstar vs. FactSet Research Systems | Morningstar vs. Intercontinental Exchange | Morningstar vs. Nasdaq Inc | Morningstar vs. CME Group |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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