Correlation Between Morgan Stanley and Two Harbors

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

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

Diversification Opportunities for Morgan Stanley and Two Harbors

0.65

Correlation Coefficient

Morgan Stanley  Two Harbors

Poor diversification

The 3 months correlation between Morgan and Two is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley and Two Harbors Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Two Harbors Investments 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 Two Harbors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Two Harbors Investments has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Two Harbors go up and down completely randomly.

Pair Corralation between Morgan Stanley and Two Harbors

Allowing for the 90-day total investment horizon Morgan Stanley is expected to under-perform the Two Harbors. But the stock apears to be less risky and, when comparing its historical volatility, Morgan Stanley is 1.12 times less risky than Two Harbors. The stock trades about -0.1 of its potential returns per unit of risk. The Two Harbors Investments is currently generating about 0.44 of returns per unit of risk over similar time horizon. If you would invest  1,198  in Two Harbors Investments on November 28, 2024 and sell it today you would earn a total of  199.00  from holding Two Harbors Investments or generate 16.61% return on investment over 90 days.

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

Morgan Stanley  vs.  Two Harbors Investments

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 comparatively stable basic indicators, Morgan Stanley is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Two Harbors Investments

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Two Harbors Investments are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Two Harbors displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Morgan Stanley and Two Harbors

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

The idea behind Morgan Stanley and Two Harbors Investments 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.