Correlation Between Morgan Stanley and Norsk Hydro

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

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

Diversification Opportunities for Morgan Stanley and Norsk Hydro

0.72

Correlation Coefficient

Morgan Stanley  Norsk Hydro

Poor diversification

The 3 months correlation between Morgan and Norsk is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley and Norsk Hydro ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norsk Hydro ASA 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 Norsk Hydro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Norsk Hydro ASA has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Norsk Hydro go up and down completely randomly.

Pair Corralation between Morgan Stanley and Norsk Hydro

Assuming the 90 days trading horizon Morgan Stanley is expected to generate 0.77 times more return on investment than Norsk Hydro. However, Morgan Stanley is 1.3 times less risky than Norsk Hydro. It trades about 0.24 of its potential returns per unit of risk. Norsk Hydro ASA is currently generating about 0.12 per unit of risk. If you would invest  9,070  in Morgan Stanley on September 3, 2024 and sell it today you would earn a total of  3,442  from holding Morgan Stanley or generate 37.95% return on investment over 90 days.

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

Morgan Stanley  vs.  Norsk Hydro ASA

Morgan Stanley

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental indicators, Morgan Stanley unveiled solid returns over the last few months and may actually be approaching a breakup point.

Norsk Hydro ASA

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Morgan Stanley and Norsk Hydro

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

The idea behind Morgan Stanley and Norsk Hydro ASA 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.