Correlation Between Morgan Stanley and Lung Hwa

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

Diversification Opportunities for Morgan Stanley and Lung Hwa

-0.38

Correlation Coefficient

Morgan Stanley  Lung Hwa

Very good diversification

The 3 months correlation between Morgan and Lung is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and Lung Hwa Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lung Hwa Electronics 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 Lung Hwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lung Hwa Electronics has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Lung Hwa go up and down completely randomly.

Pair Corralation between Morgan Stanley and Lung Hwa

Given the investment horizon of 90 days Morgan Stanley is expected to generate 6.69 times less return on investment than Lung Hwa. But when comparing it to its historical volatility, Morgan Stanley Direct is 2.27 times less risky than Lung Hwa. It trades about 0.03 of its potential returns per unit of risk. Lung Hwa Electronics is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,305  in Lung Hwa Electronics on December 4, 2024 and sell it today you would earn a total of  3,695  from holding Lung Hwa Electronics or generate 160.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	57.68%
Values	Daily Returns

Morgan Stanley Direct  vs.  Lung Hwa Electronics

Morgan Stanley Direct

Risk-Adjusted Performance

Very Weak

Over the last 90 days Morgan Stanley Direct has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Lung Hwa Electronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lung Hwa Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Morgan Stanley and Lung Hwa

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

The idea behind Morgan Stanley Direct and Lung Hwa Electronics 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.