Correlation Between First Trust and Morgan Stanley

Can any of the company-specific risk be diversified away by investing in both First Trust 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 First Trust and Morgan Stanley into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between First Trust SMID and Morgan Stanley Pathway, you can compare the effects of market volatilities on First Trust 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 First Trust with a short position of Morgan Stanley. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Morgan Stanley.

Diversification Opportunities for First Trust and Morgan Stanley

0.92

Correlation Coefficient

First Trust  Morgan Stanley

Almost no diversification

The 3 months correlation between First and Morgan is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding First Trust SMID and Morgan Stanley Pathway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morgan Stanley Pathway and First Trust 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 First Trust SMID 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 Pathway has no effect on the direction of First Trust i.e., First Trust and Morgan Stanley go up and down completely randomly.

Pair Corralation between First Trust and Morgan Stanley

Given the investment horizon of 90 days First Trust is expected to generate 1.81 times less return on investment than Morgan Stanley. But when comparing it to its historical volatility, First Trust SMID is 1.06 times less risky than Morgan Stanley. It trades about 0.13 of its potential returns per unit of risk. Morgan Stanley Pathway is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  4,226  in Morgan Stanley Pathway on April 29, 2025 and sell it today you would earn a total of  613.00  from holding Morgan Stanley Pathway or generate 14.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

First Trust SMID  vs.  Morgan Stanley Pathway

First Trust SMID

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust SMID are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Morgan Stanley Pathway

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley Pathway are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Morgan Stanley displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Trust and Morgan Stanley

The main advantage of trading using opposite First Trust and Morgan Stanley positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust 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 First Trust SMID and Morgan Stanley Pathway 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.