Correlation Between Morgan Stanley and HUSI11

Can any of the company-specific risk be diversified away by investing in both Morgan Stanley and HUSI11 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 HUSI11 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 HUSI11, you can compare the effects of market volatilities on Morgan Stanley and HUSI11 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 HUSI11. Check out your portfolio center. Please also check ongoing floating volatility patterns of Morgan Stanley and HUSI11.

Diversification Opportunities for Morgan Stanley and HUSI11

0.07

Correlation Coefficient

Morgan Stanley  HUSI11

Significant diversification

The 3 months correlation between Morgan and HUSI11 is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and HUSI11 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HUSI11 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 HUSI11. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HUSI11 has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and HUSI11 go up and down completely randomly.

Pair Corralation between Morgan Stanley and HUSI11

Given the investment horizon of 90 days Morgan Stanley Direct is expected to under-perform the HUSI11. But the stock apears to be less risky and, when comparing its historical volatility, Morgan Stanley Direct is 3.55 times less risky than HUSI11. The stock trades about 0.0 of its potential returns per unit of risk. The HUSI11 is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  121,635  in HUSI11 on December 5, 2024 and sell it today you would lose (1,635) from holding HUSI11 or give up 1.34% of portfolio value over 90 days.

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

Morgan Stanley Direct  vs.  HUSI11

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 current stock price mess, may contribute to short-term losses for the institutional investors.

HUSI11

Risk-Adjusted Performance

Very Weak

Over the last 90 days HUSI11 has generated negative risk-adjusted returns adding no value to fund investors. Despite somewhat strong basic indicators, HUSI11 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Morgan Stanley and HUSI11

The main advantage of trading using opposite Morgan Stanley and HUSI11 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Morgan Stanley position performs unexpectedly, HUSI11 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 HUSI11 will offset losses from the drop in HUSI11's long position.

The idea behind Morgan Stanley Direct and HUSI11 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.

Check out your portfolio center.

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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.