Correlation Between Morgan Stanley and Cathay SP

Can any of the company-specific risk be diversified away by investing in both Morgan Stanley and Cathay SP 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 Cathay SP 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 Cathay SP North, you can compare the effects of market volatilities on Morgan Stanley and Cathay SP 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 Cathay SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Morgan Stanley and Cathay SP.

Diversification Opportunities for Morgan Stanley and Cathay SP

0.84

Correlation Coefficient

Morgan Stanley  Cathay SP

Very poor diversification

The 3 months correlation between Morgan and Cathay is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and Cathay SP North in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay SP North 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 Cathay SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay SP North has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Cathay SP go up and down completely randomly.

Pair Corralation between Morgan Stanley and Cathay SP

Given the investment horizon of 90 days Morgan Stanley is expected to generate 1.7 times less return on investment than Cathay SP. But when comparing it to its historical volatility, Morgan Stanley Direct is 1.07 times less risky than Cathay SP. It trades about 0.15 of its potential returns per unit of risk. Cathay SP North is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  4,535  in Cathay SP North on September 14, 2024 and sell it today you would earn a total of  715.00  from holding Cathay SP North or generate 15.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Morgan Stanley Direct  vs.  Cathay SP North

Morgan Stanley Direct

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley Direct are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite weak fundamental indicators, Morgan Stanley may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Cathay SP North

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay SP North are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Cathay SP unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Morgan Stanley and Cathay SP

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

The idea behind Morgan Stanley Direct and Cathay SP North 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.