Correlation Between Morgan Stanley and SHOPRITE HDGS

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

Diversification Opportunities for Morgan Stanley and SHOPRITE HDGS

0.24

Correlation Coefficient

Morgan Stanley  SHOPRITE HDGS

Modest diversification

The 3 months correlation between Morgan and SHOPRITE is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and SHOPRITE HDGS ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SHOPRITE HDGS ADR 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 SHOPRITE HDGS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SHOPRITE HDGS ADR has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and SHOPRITE HDGS go up and down completely randomly.

Pair Corralation between Morgan Stanley and SHOPRITE HDGS

Given the investment horizon of 90 days Morgan Stanley is expected to generate 1.28 times less return on investment than SHOPRITE HDGS. But when comparing it to its historical volatility, Morgan Stanley Direct is 1.46 times less risky than SHOPRITE HDGS. It trades about 0.04 of its potential returns per unit of risk. SHOPRITE HDGS ADR is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,205  in SHOPRITE HDGS ADR on October 10, 2024 and sell it today you would earn a total of  305.00  from holding SHOPRITE HDGS ADR or generate 25.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	48.3%
Values	Daily Returns

Morgan Stanley Direct  vs.  SHOPRITE HDGS ADR

Morgan Stanley Direct

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley Direct are ranked lower than 6 (%) 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 recent stock price mess, may contribute to short-term losses for the institutional investors.

SHOPRITE HDGS ADR

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SHOPRITE HDGS ADR are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, SHOPRITE HDGS is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Morgan Stanley and SHOPRITE HDGS

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

The idea behind Morgan Stanley Direct and SHOPRITE HDGS ADR 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.