Correlation Between Fifth Third and Morgan Stanley
Can any of the company-specific risk be diversified away by investing in both Fifth Third 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 Fifth Third and Morgan Stanley into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fifth Third Bancorp and Morgan Stanley, you can compare the effects of market volatilities on Fifth Third 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 Fifth Third with a short position of Morgan Stanley. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fifth Third and Morgan Stanley.
Diversification Opportunities for Fifth Third and Morgan Stanley
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Fifth and Morgan is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Fifth Third Bancorp and Morgan Stanley in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morgan Stanley and Fifth Third 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 Fifth Third Bancorp 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 Fifth Third i.e., Fifth Third and Morgan Stanley go up and down completely randomly.
Pair Corralation between Fifth Third and Morgan Stanley
Given the investment horizon of 90 days Fifth Third Bancorp is expected to generate 1.35 times more return on investment than Morgan Stanley. However, Fifth Third is 1.35 times more volatile than Morgan Stanley. It trades about 0.09 of its potential returns per unit of risk. Morgan Stanley is currently generating about 0.03 per unit of risk. If you would invest 2,464 in Fifth Third Bancorp on January 25, 2024 and sell it today you would earn a total of 1,242 from holding Fifth Third Bancorp or generate 50.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fifth Third Bancorp vs. Morgan Stanley
Performance |
| Timeline |
| Fifth Third Bancorp |
| Morgan Stanley |
Fifth Third and Morgan Stanley Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fifth Third and Morgan Stanley
The main advantage of trading using opposite Fifth Third and Morgan Stanley positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fifth Third 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 Fifth Third Bancorp 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. JPMorgan Chase Co | Morgan Stanley vs. Wells Fargo | Morgan Stanley vs. Citigroup | Morgan Stanley vs. American Express |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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