Correlation Between First Trust and Morgan Stanley

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

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

Diversification Opportunities for First Trust and Morgan Stanley

-0.07

Correlation Coefficient

First Trust  Morgan Stanley

Good diversification

The 3 months correlation between First and Morgan is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Mortgage and Morgan Stanley China in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morgan Stanley China and First Trust 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 First Trust Mortgage 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 China has no effect on the direction of First Trust i.e., First Trust and Morgan Stanley go up and down completely randomly.

Pair Corralation between First Trust and Morgan Stanley

Considering the 90-day investment horizon First Trust Mortgage is expected to under-perform the Morgan Stanley. But the fund apears to be less risky and, when comparing its historical volatility, First Trust Mortgage is 3.83 times less risky than Morgan Stanley. The fund trades about -0.02 of its potential returns per unit of risk. The Morgan Stanley China is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,135  in Morgan Stanley China on September 14, 2024 and sell it today you would earn a total of  158.00  from holding Morgan Stanley China or generate 13.92% return on investment over 90 days.

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

First Trust Mortgage  vs.  Morgan Stanley China

First Trust Mortgage

Risk-Adjusted Performance

0 of 100

Very Weak

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

Morgan Stanley China

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley China are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. Despite nearly unsteady basic indicators, Morgan Stanley reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Trust and Morgan Stanley

The main advantage of trading using opposite First Trust and Morgan Stanley positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust 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 First Trust Mortgage and Morgan Stanley China 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 Transaction History module to view history of all your transactions and understand their impact on performance.