Correlation Between Microsoft and Morgan Stanley
Can any of the company-specific risk be diversified away by investing in both Microsoft 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 Microsoft and Morgan Stanley into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Morgan Stanley, you can compare the effects of market volatilities on Microsoft 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 Microsoft with a short position of Morgan Stanley. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Morgan Stanley.
Diversification Opportunities for Microsoft and Morgan Stanley
-0.05 | Correlation Coefficient |
Good diversification
The 3 months correlation between Microsoft and Morgan is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Morgan Stanley in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morgan Stanley and Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and Morgan Stanley go up and down completely randomly.
Pair Corralation between Microsoft and Morgan Stanley
Given the investment horizon of 90 days Microsoft is expected to generate 6.84 times less return on investment than Morgan Stanley. But when comparing it to its historical volatility, Microsoft is 1.53 times less risky than Morgan Stanley. It trades about 0.03 of its potential returns per unit of risk. Morgan Stanley is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 7,854 in Morgan Stanley on August 29, 2024 and sell it today you would earn a total of 4,660 from holding Morgan Stanley or generate 59.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 98.58% |
| Values | Daily Returns |
Microsoft vs. Morgan Stanley
Performance |
| Timeline |
| Microsoft |
| Morgan Stanley |
Microsoft and Morgan Stanley Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Morgan Stanley
The main advantage of trading using opposite Microsoft and Morgan Stanley positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Morgan Stanley vs. Tower Semiconductor | Morgan Stanley vs. USWE SPORTS AB | Morgan Stanley vs. Fukuyama Transporting Co | Morgan Stanley vs. Transport International Holdings |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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