Correlation Between Morgan Stanley and NetEase

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

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

Diversification Opportunities for Morgan Stanley and NetEase

0.84

Correlation Coefficient

Morgan Stanley  NetEase

Very poor diversification

The 3 months correlation between Morgan and NetEase is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley and NetEase in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetEase 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 NetEase. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NetEase has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and NetEase go up and down completely randomly.

Pair Corralation between Morgan Stanley and NetEase

Allowing for the 90-day total investment horizon Morgan Stanley is expected to generate 2.42 times less return on investment than NetEase. But when comparing it to its historical volatility, Morgan Stanley is 5.74 times less risky than NetEase. It trades about 0.28 of its potential returns per unit of risk. NetEase is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,942  in NetEase on April 30, 2025 and sell it today you would earn a total of  868.00  from holding NetEase or generate 44.7% return on investment over 90 days.

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

Morgan Stanley  vs.  NetEase

Morgan Stanley

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Morgan Stanley unveiled solid returns over the last few months and may actually be approaching a breakup point.

NetEase

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NetEase are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, NetEase reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Morgan Stanley and NetEase

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

The idea behind Morgan Stanley and NetEase 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.