Correlation Between Morgan Stanley and Nanjing Red

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

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

Diversification Opportunities for Morgan Stanley and Nanjing Red

0.61

Correlation Coefficient

Morgan Stanley  Nanjing Red

Poor diversification

The 3 months correlation between Morgan and Nanjing is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and Nanjing Red Sun in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nanjing Red Sun 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 Direct are associated (or correlated) with Nanjing Red. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nanjing Red Sun has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Nanjing Red go up and down completely randomly.

Pair Corralation between Morgan Stanley and Nanjing Red

Given the investment horizon of 90 days Morgan Stanley is expected to generate 3.46 times less return on investment than Nanjing Red. But when comparing it to its historical volatility, Morgan Stanley Direct is 2.01 times less risky than Nanjing Red. It trades about 0.03 of its potential returns per unit of risk. Nanjing Red Sun is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  552.00  in Nanjing Red Sun on September 21, 2024 and sell it today you would earn a total of  187.00  from holding Nanjing Red Sun or generate 33.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	89.15%
Values	Daily Returns

Morgan Stanley Direct  vs.  Nanjing Red Sun

Morgan Stanley Direct

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley Direct are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, Morgan Stanley is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Nanjing Red Sun

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nanjing Red Sun are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nanjing Red sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Morgan Stanley and Nanjing Red

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

The idea behind Morgan Stanley Direct and Nanjing Red Sun 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.