Correlation Between Small Cap and Morgan Stanley

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

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

Diversification Opportunities for Small Cap and Morgan Stanley

0.92

Correlation Coefficient

Small Cap  Morgan Stanley

Almost no diversification

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

Pair Corralation between Small Cap and Morgan Stanley

Assuming the 90 days horizon Small Cap is expected to generate 1.92 times less return on investment than Morgan Stanley. In addition to that, Small Cap is 1.28 times more volatile than Morgan Stanley Institutional. It trades about 0.07 of its total potential returns per unit of risk. Morgan Stanley Institutional is currently generating about 0.18 per unit of volatility. If you would invest  1,320  in Morgan Stanley Institutional on May 14, 2025 and sell it today you would earn a total of  108.00  from holding Morgan Stanley Institutional or generate 8.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.39%
Values	Daily Returns

Small Cap Equity  vs.  Morgan Stanley Institutional

Small Cap Equity

Risk-Adjusted Performance

Mild

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Equity are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Small Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Morgan Stanley Insti

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley Institutional are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak primary indicators, Morgan Stanley may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Small Cap and Morgan Stanley

The main advantage of trading using opposite Small Cap and Morgan Stanley positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap 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 Small Cap Equity and Morgan Stanley Institutional 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.