Correlation Between Regional Management and Morgan Stanley

Can any of the company-specific risk be diversified away by investing in both Regional Management and Morgan Stanley 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 Regional Management and Morgan Stanley into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Regional Management Corp and Morgan Stanley, you can compare the effects of market volatilities on Regional Management and Morgan Stanley 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 Regional Management with a short position of Morgan Stanley. Check out your portfolio center. Please also check ongoing floating volatility patterns of Regional Management and Morgan Stanley.

Diversification Opportunities for Regional Management and Morgan Stanley

0.95

Correlation Coefficient

Regional Management  Morgan Stanley

Almost no diversification

The 3 months correlation between Regional and Morgan is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Regional Management Corp and Morgan Stanley in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morgan Stanley and Regional Management 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 Regional Management Corp are associated (or correlated) with Morgan Stanley. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Morgan Stanley has no effect on the direction of Regional Management i.e., Regional Management and Morgan Stanley go up and down completely randomly.

Pair Corralation between Regional Management and Morgan Stanley

Allowing for the 90-day total investment horizon Regional Management Corp is expected to under-perform the Morgan Stanley. But the stock apears to be less risky and, when comparing its historical volatility, Regional Management Corp is 1.04 times less risky than Morgan Stanley. The stock trades about -0.03 of its potential returns per unit of risk. The Morgan Stanley is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  12,492  in Morgan Stanley on December 28, 2024 and sell it today you would lose (592.00) from holding Morgan Stanley or give up 4.74% of portfolio value over 90 days.

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

Regional Management Corp  vs.  Morgan Stanley

Regional Management Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Regional Management Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Regional Management is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Morgan Stanley

Risk-Adjusted Performance

Very Weak

Over the last 90 days Morgan Stanley has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Morgan Stanley is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Regional Management and Morgan Stanley

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

The idea behind Regional Management Corp and Morgan Stanley 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.