Correlation Between Moodys and Morningstar

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

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

Diversification Opportunities for Moodys and Morningstar

0.16

Correlation Coefficient

Moodys  Morningstar

Average diversification

The 3 months correlation between Moodys and Morningstar is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Moodys and Morningstar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morningstar and Moodys 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 Moodys are associated (or correlated) with Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Morningstar has no effect on the direction of Moodys i.e., Moodys and Morningstar go up and down completely randomly.

Pair Corralation between Moodys and Morningstar

Considering the 90-day investment horizon Moodys is expected to generate 0.71 times more return on investment than Morningstar. However, Moodys is 1.4 times less risky than Morningstar. It trades about -0.11 of its potential returns per unit of risk. Morningstar is currently generating about -0.09 per unit of risk. If you would invest  39,157  in Moodys on February 4, 2024 and sell it today you would lose (1,101) from holding Moodys or give up 2.81% of portfolio value over 90 days.

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

Moodys  vs.  Morningstar

Moodys

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Moodys has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Moodys is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Morningstar

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Morningstar are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Morningstar may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Moodys and Morningstar

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

The idea behind Moodys and Morningstar 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.