Correlation Between Morgan Stanley and Challenger
Can any of the company-specific risk be diversified away by investing in both Morgan Stanley and Challenger 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 Challenger into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Morgan Stanley China and Challenger Ltd ADR, you can compare the effects of market volatilities on Morgan Stanley and Challenger 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 Challenger. Check out your portfolio center. Please also check ongoing floating volatility patterns of Morgan Stanley and Challenger.
Diversification Opportunities for Morgan Stanley and Challenger
-0.69 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Morgan and Challenger is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley China and Challenger Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Challenger 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 China are associated (or correlated) with Challenger. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Challenger ADR has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Challenger go up and down completely randomly.
Pair Corralation between Morgan Stanley and Challenger
Considering the 90-day investment horizon Morgan Stanley China is expected to under-perform the Challenger. In addition to that, Morgan Stanley is 5.37 times more volatile than Challenger Ltd ADR. It trades about -0.03 of its total potential returns per unit of risk. Challenger Ltd ADR is currently generating about 0.13 per unit of volatility. If you would invest 4,285 in Challenger Ltd ADR on January 26, 2024 and sell it today you would earn a total of 85.00 from holding Challenger Ltd ADR or generate 1.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Morgan Stanley China vs. Challenger Ltd ADR
Performance |
| Timeline |
| Morgan Stanley China |
| Challenger ADR |
Morgan Stanley and Challenger Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Morgan Stanley and Challenger
The main advantage of trading using opposite Morgan Stanley and Challenger positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Morgan Stanley position performs unexpectedly, Challenger 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 Challenger will offset losses from the drop in Challenger's long position.The idea behind Morgan Stanley China and Challenger Ltd 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.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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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