Correlation Between Scandinavian Tobacco and Morgan Stanley

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

By analyzing existing cross correlation between Scandinavian Tobacco Group and Morgan Stanley Direct, you can compare the effects of market volatilities on Scandinavian Tobacco and Morgan Stanley 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 Scandinavian Tobacco with a short position of Morgan Stanley. Check out your portfolio center. Please also check ongoing floating volatility patterns of Scandinavian Tobacco and Morgan Stanley.

Diversification Opportunities for Scandinavian Tobacco and Morgan Stanley

-0.59

Correlation Coefficient

Scandinavian Tobacco  Morgan Stanley

Excellent diversification

The 3 months correlation between Scandinavian and Morgan is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Scandinavian Tobacco Group and Morgan Stanley Direct in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morgan Stanley Direct and Scandinavian Tobacco 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 Scandinavian Tobacco Group are associated (or correlated) with Morgan Stanley. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Morgan Stanley Direct has no effect on the direction of Scandinavian Tobacco i.e., Scandinavian Tobacco and Morgan Stanley go up and down completely randomly.

Pair Corralation between Scandinavian Tobacco and Morgan Stanley

Assuming the 90 days horizon Scandinavian Tobacco Group is expected to generate 1.69 times more return on investment than Morgan Stanley. However, Scandinavian Tobacco is 1.69 times more volatile than Morgan Stanley Direct. It trades about 0.15 of its potential returns per unit of risk. Morgan Stanley Direct is currently generating about -0.01 per unit of risk. If you would invest  684.00  in Scandinavian Tobacco Group on December 30, 2024 and sell it today you would earn a total of  107.00  from holding Scandinavian Tobacco Group or generate 15.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.88%
Values	Daily Returns

Scandinavian Tobacco Group  vs.  Morgan Stanley Direct

Scandinavian Tobacco

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Scandinavian Tobacco Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Scandinavian Tobacco showed solid returns over the last few months and may actually be approaching a breakup point.

Morgan Stanley Direct

Risk-Adjusted Performance

Very Weak

Over the last 90 days Morgan Stanley Direct has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Morgan Stanley is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Scandinavian Tobacco and Morgan Stanley

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

The idea behind Scandinavian Tobacco Group and Morgan Stanley Direct 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.