Correlation Between International Equity and Morgan Stanley
Can any of the company-specific risk be diversified away by investing in both International Equity 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 International Equity and Morgan Stanley into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Equity Fund and Morgan Stanley European, you can compare the effects of market volatilities on International Equity 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 International Equity with a short position of Morgan Stanley. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Equity and Morgan Stanley.
Diversification Opportunities for International Equity and Morgan Stanley
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between International and Morgan is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Fund and Morgan Stanley European in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morgan Stanley European and International Equity 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 International Equity Fund 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 European has no effect on the direction of International Equity i.e., International Equity and Morgan Stanley go up and down completely randomly.
Pair Corralation between International Equity and Morgan Stanley
Assuming the 90 days horizon International Equity is expected to generate 1.58 times less return on investment than Morgan Stanley. But when comparing it to its historical volatility, International Equity Fund is 1.26 times less risky than Morgan Stanley. It trades about 0.05 of its potential returns per unit of risk. Morgan Stanley European is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 1,940 in Morgan Stanley European on September 4, 2024 and sell it today you would earn a total of 315.00 from holding Morgan Stanley European or generate 16.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.6% |
| Values | Daily Returns |
International Equity Fund vs. Morgan Stanley European
Performance |
| Timeline |
| International Equity |
| Morgan Stanley European |
International Equity and Morgan Stanley Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Equity and Morgan Stanley
The main advantage of trading using opposite International Equity and Morgan Stanley positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Equity 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.| International Equity vs. Emerging Markets Equity | International Equity vs. Global Fixed Income | International Equity vs. Global Fixed Income | International Equity vs. Global Fixed Income |
| Morgan Stanley vs. Gabelli Gold Fund | Morgan Stanley vs. Fidelity Advisor Gold | Morgan Stanley vs. Gamco Global Gold | Morgan Stanley vs. First Eagle Gold |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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