Correlation Between Morgan Stanley and RenaissanceRe Holdings

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

Diversification Opportunities for Morgan Stanley and RenaissanceRe Holdings

0.6

Correlation Coefficient

Morgan Stanley  RenaissanceRe Holdings

Poor diversification

The 3 months correlation between Morgan and RenaissanceRe is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and RenaissanceRe Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RenaissanceRe Holdings 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 RenaissanceRe Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RenaissanceRe Holdings has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and RenaissanceRe Holdings go up and down completely randomly.

Pair Corralation between Morgan Stanley and RenaissanceRe Holdings

Given the investment horizon of 90 days Morgan Stanley is expected to generate 1.58 times less return on investment than RenaissanceRe Holdings. But when comparing it to its historical volatility, Morgan Stanley Direct is 1.11 times less risky than RenaissanceRe Holdings. It trades about 0.03 of its potential returns per unit of risk. RenaissanceRe Holdings is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  17,137  in RenaissanceRe Holdings on September 24, 2024 and sell it today you would earn a total of  6,663  from holding RenaissanceRe Holdings or generate 38.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	45.85%
Values	Daily Returns

Morgan Stanley Direct  vs.  RenaissanceRe Holdings

Morgan Stanley Direct

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley Direct are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady fundamental indicators, Morgan Stanley may actually be approaching a critical reversion point that can send shares even higher in January 2025.

RenaissanceRe Holdings

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in RenaissanceRe Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, RenaissanceRe Holdings 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 RenaissanceRe Holdings

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

The idea behind Morgan Stanley Direct and RenaissanceRe Holdings 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.