Correlation Between Morgan Stanley and Afrimat

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

Diversification Opportunities for Morgan Stanley and Afrimat

-0.1

Correlation Coefficient

Morgan Stanley  Afrimat

Good diversification

The 3 months correlation between Morgan and Afrimat is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and Afrimat in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Afrimat 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 Afrimat. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Afrimat has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Afrimat go up and down completely randomly.

Pair Corralation between Morgan Stanley and Afrimat

Given the investment horizon of 90 days Morgan Stanley Direct is expected to under-perform the Afrimat. But the stock apears to be less risky and, when comparing its historical volatility, Morgan Stanley Direct is 1.38 times less risky than Afrimat. The stock trades about -0.15 of its potential returns per unit of risk. The Afrimat is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  611,100  in Afrimat on December 4, 2024 and sell it today you would lose (16,900) from holding Afrimat or give up 2.77% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	90.91%
Values	Daily Returns

Morgan Stanley Direct  vs.  Afrimat

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.

Afrimat

Risk-Adjusted Performance

Very Weak

Over the last 90 days Afrimat has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Morgan Stanley and Afrimat

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

The idea behind Morgan Stanley Direct and Afrimat 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.