Correlation Between Morgan Stanley and China Railway

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

Diversification Opportunities for Morgan Stanley and China Railway

0.74

Correlation Coefficient

Morgan Stanley  China Railway

Poor diversification

The 3 months correlation between Morgan and China is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and China Railway Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Railway Materials 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 China Railway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Railway Materials has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and China Railway go up and down completely randomly.

Pair Corralation between Morgan Stanley and China Railway

Given the investment horizon of 90 days Morgan Stanley is expected to generate 3.17 times less return on investment than China Railway. But when comparing it to its historical volatility, Morgan Stanley Direct is 2.53 times less risky than China Railway. It trades about 0.16 of its potential returns per unit of risk. China Railway Materials is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  230.00  in China Railway Materials on September 13, 2024 and sell it today you would earn a total of  67.00  from holding China Railway Materials or generate 29.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	90.48%
Values	Daily Returns

Morgan Stanley Direct  vs.  China Railway Materials

Morgan Stanley Direct

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley Direct are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite weak fundamental indicators, Morgan Stanley may actually be approaching a critical reversion point that can send shares even higher in January 2025.

China Railway Materials

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Materials are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Railway sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Morgan Stanley and China Railway

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

The idea behind Morgan Stanley Direct and China Railway Materials 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.