Correlation Between Morgan Stanley and Eternal Energy

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

Diversification Opportunities for Morgan Stanley and Eternal Energy

0.63

Correlation Coefficient

Morgan Stanley  Eternal Energy

Poor diversification

The 3 months correlation between Morgan and Eternal is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and Eternal Energy Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eternal Energy Public 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 Eternal Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eternal Energy Public has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Eternal Energy go up and down completely randomly.

Pair Corralation between Morgan Stanley and Eternal Energy

Given the investment horizon of 90 days Morgan Stanley is expected to generate 32.07 times less return on investment than Eternal Energy. But when comparing it to its historical volatility, Morgan Stanley Direct is 15.06 times less risky than Eternal Energy. It trades about 0.2 of its potential returns per unit of risk. Eternal Energy Public is currently generating about 0.43 of returns per unit of risk over similar time horizon. If you would invest  20.00  in Eternal Energy Public on September 16, 2024 and sell it today you would earn a total of  38.00  from holding Eternal Energy Public or generate 190.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Morgan Stanley Direct  vs.  Eternal Energy Public

Morgan Stanley Direct

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley Direct are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating fundamental indicators, Morgan Stanley may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Eternal Energy Public

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eternal Energy Public are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting fundamental drivers, Eternal Energy disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Morgan Stanley and Eternal Energy

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

The idea behind Morgan Stanley Direct and Eternal Energy Public 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.