Correlation Between Morgan Stanley and First Trust

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

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

Diversification Opportunities for Morgan Stanley and First Trust

0.49

Correlation Coefficient

Morgan Stanley  First Trust

Very weak diversification

The 3 months correlation between Morgan and First is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley China and First Trust Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Mortgage 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 China are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Mortgage has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and First Trust go up and down completely randomly.

Pair Corralation between Morgan Stanley and First Trust

Considering the 90-day investment horizon Morgan Stanley China is expected to generate 1.75 times more return on investment than First Trust. However, Morgan Stanley is 1.75 times more volatile than First Trust Mortgage. It trades about 0.07 of its potential returns per unit of risk. First Trust Mortgage is currently generating about 0.04 per unit of risk. If you would invest  1,202  in Morgan Stanley China on December 4, 2024 and sell it today you would earn a total of  68.00  from holding Morgan Stanley China or generate 5.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

Morgan Stanley China  vs.  First Trust Mortgage

Morgan Stanley China

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley China are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. Despite nearly unsteady basic indicators, Morgan Stanley may actually be approaching a critical reversion point that can send shares even higher in April 2025.

First Trust Mortgage

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Mortgage are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, First Trust is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Morgan Stanley and First Trust

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

The idea behind Morgan Stanley China and First Trust Mortgage 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 Global Correlations module to find global opportunities by holding instruments from different markets.