Correlation Between Citigroup and Morgan Stanley

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

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

Diversification Opportunities for Citigroup and Morgan Stanley

0.91

Correlation Coefficient

Citigroup  Morgan Stanley

Almost no diversification

The 3 months correlation between Citigroup and Morgan is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Morgan Stanley in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morgan Stanley and Citigroup 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 Citigroup 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 Citigroup i.e., Citigroup and Morgan Stanley go up and down completely randomly.

Pair Corralation between Citigroup and Morgan Stanley

Given the investment horizon of 90 days Citigroup is expected to generate 0.94 times more return on investment than Morgan Stanley. However, Citigroup is 1.07 times less risky than Morgan Stanley. It trades about 0.0 of its potential returns per unit of risk. Morgan Stanley is currently generating about -0.06 per unit of risk. If you would invest  143,780  in Citigroup on December 29, 2024 and sell it today you would lose (1,080) from holding Citigroup or give up 0.75% of portfolio value over 90 days.

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

Citigroup  vs.  Morgan Stanley

Citigroup

Risk-Adjusted Performance

Very Weak

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

Morgan Stanley

Risk-Adjusted Performance

Very Weak

Over the last 90 days Morgan Stanley has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Citigroup and Morgan Stanley

The main advantage of trading using opposite Citigroup and Morgan Stanley positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Citigroup 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 Citigroup 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.

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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.