Correlation Between Morgan Stanley and Redwood Trust
Can any of the company-specific risk be diversified away by investing in both Morgan Stanley and Redwood Trust 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 Redwood Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Morgan Stanley and Redwood Trust, you can compare the effects of market volatilities on Morgan Stanley and Redwood Trust 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 Redwood Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Morgan Stanley and Redwood Trust.
Diversification Opportunities for Morgan Stanley and Redwood Trust
-0.61 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Morgan and Redwood is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley and Redwood Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Redwood Trust 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 Redwood Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Redwood Trust has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Redwood Trust go up and down completely randomly.
Pair Corralation between Morgan Stanley and Redwood Trust
Allowing for the 90-day total investment horizon Morgan Stanley is expected to generate 2.56 times more return on investment than Redwood Trust. However, Morgan Stanley is 2.56 times more volatile than Redwood Trust. It trades about 0.21 of its potential returns per unit of risk. Redwood Trust is currently generating about -0.06 per unit of risk. If you would invest 11,685 in Morgan Stanley on September 2, 2024 and sell it today you would earn a total of 1,476 from holding Morgan Stanley or generate 12.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Morgan Stanley vs. Redwood Trust
Performance |
| Timeline |
| Morgan Stanley |
| Redwood Trust |
Morgan Stanley and Redwood Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Morgan Stanley and Redwood Trust
The main advantage of trading using opposite Morgan Stanley and Redwood Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Morgan Stanley position performs unexpectedly, Redwood Trust 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 Redwood Trust will offset losses from the drop in Redwood Trust's long position.| Morgan Stanley vs. Goldman Sachs Group | Morgan Stanley vs. Riot Blockchain | Morgan Stanley vs. Marathon Digital Holdings | Morgan Stanley vs. Applied Blockchain |
| Redwood Trust vs. Two Harbors Investments | Redwood Trust vs. AG Mortgage Investment | Redwood Trust vs. Invesco Mortgage Capital | Redwood Trust vs. MFA Financial |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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