Correlation Between Morgan Stanley and Citigroup

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

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

Diversification Opportunities for Morgan Stanley and Citigroup

0.91

Correlation Coefficient

Morgan Stanley  Citigroup

Almost no diversification

The 3 months correlation between Morgan and Citigroup is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley and Citigroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citigroup 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 are associated (or correlated) with Citigroup. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citigroup has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Citigroup go up and down completely randomly.

Pair Corralation between Morgan Stanley and Citigroup

Assuming the 90 days horizon Morgan Stanley is expected to under-perform the Citigroup. In addition to that, Morgan Stanley is 1.07 times more volatile than Citigroup. It trades about -0.06 of its total potential returns per unit of risk. Citigroup is currently generating about 0.0 per unit of volatility. 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

Morgan Stanley  vs.  Citigroup

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.

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.

Pair Trading with Morgan Stanley and Citigroup

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

The idea behind Morgan Stanley and Citigroup 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.