Correlation Between Morgan Stanley and Smallcap World

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

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

Diversification Opportunities for Morgan Stanley and Smallcap World

0.58

Correlation Coefficient

Morgan Stanley  Smallcap World

Very weak diversification

The 3 months correlation between Morgan and Smallcap is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Institutional and Smallcap World Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap World and Morgan Stanley 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 Morgan Stanley Institutional are associated (or correlated) with Smallcap World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap World has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Smallcap World go up and down completely randomly.

Pair Corralation between Morgan Stanley and Smallcap World

Assuming the 90 days horizon Morgan Stanley Institutional is expected to generate 1.01 times more return on investment than Smallcap World. However, Morgan Stanley is 1.01 times more volatile than Smallcap World Fund. It trades about 0.21 of its potential returns per unit of risk. Smallcap World Fund is currently generating about 0.17 per unit of risk. If you would invest  1,304  in Morgan Stanley Institutional on May 11, 2025 and sell it today you would earn a total of  125.00  from holding Morgan Stanley Institutional or generate 9.59% return on investment over 90 days.

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

Morgan Stanley Institutional  vs.  Smallcap World Fund

Morgan Stanley Insti

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley Institutional are ranked lower than 16 (%) 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.

Smallcap World

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap World Fund are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Smallcap World may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Morgan Stanley and Smallcap World

The main advantage of trading using opposite Morgan Stanley and Smallcap World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Morgan Stanley position performs unexpectedly, Smallcap World 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 Smallcap World will offset losses from the drop in Smallcap World's long position.

The idea behind Morgan Stanley Institutional and Smallcap World Fund 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.