Correlation Between Morgan Stanley and XTRA Bitcoin

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

By analyzing existing cross correlation between Morgan Stanley and XTRA Bitcoin, you can compare the effects of market volatilities on Morgan Stanley and XTRA Bitcoin 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 XTRA Bitcoin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Morgan Stanley and XTRA Bitcoin.

Diversification Opportunities for Morgan Stanley and XTRA Bitcoin

0.51

Correlation Coefficient

Morgan Stanley  XTRA Bitcoin

Very weak diversification

The 3 months correlation between Morgan and XTRA is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley and XTRA Bitcoin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XTRA Bitcoin 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 are associated (or correlated) with XTRA Bitcoin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XTRA Bitcoin has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and XTRA Bitcoin go up and down completely randomly.

Pair Corralation between Morgan Stanley and XTRA Bitcoin

Assuming the 90 days horizon Morgan Stanley is expected to generate 6.92 times less return on investment than XTRA Bitcoin. But when comparing it to its historical volatility, Morgan Stanley is 22.22 times less risky than XTRA Bitcoin. It trades about 0.24 of its potential returns per unit of risk. XTRA Bitcoin is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  0.11  in XTRA Bitcoin on September 11, 2024 and sell it today you would earn a total of  0.02  from holding XTRA Bitcoin or generate 18.18% return on investment over 90 days.

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

Morgan Stanley  vs.  XTRA Bitcoin

Morgan Stanley

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Morgan Stanley may actually be approaching a critical reversion point that can send shares even higher in January 2025.

XTRA Bitcoin

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in XTRA Bitcoin are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting basic indicators, XTRA Bitcoin exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Morgan Stanley and XTRA Bitcoin

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

The idea behind Morgan Stanley and XTRA Bitcoin 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.