Correlation Between Morgan Stanley and Contact Energy

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

Diversification Opportunities for Morgan Stanley and Contact Energy

0.55

Correlation Coefficient

Morgan Stanley  Contact Energy

Very weak diversification

The 3 months correlation between Morgan and Contact is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and Contact Energy Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Contact Energy 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 Contact Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Contact Energy has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Contact Energy go up and down completely randomly.

Pair Corralation between Morgan Stanley and Contact Energy

Given the investment horizon of 90 days Morgan Stanley is expected to generate 1.05 times less return on investment than Contact Energy. But when comparing it to its historical volatility, Morgan Stanley Direct is 1.04 times less risky than Contact Energy. It trades about 0.03 of its potential returns per unit of risk. Contact Energy Limited is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  379.00  in Contact Energy Limited on September 21, 2024 and sell it today you would earn a total of  85.00  from holding Contact Energy Limited or generate 22.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	45.65%
Values	Daily Returns

Morgan Stanley Direct  vs.  Contact Energy Limited

Morgan Stanley Direct

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley Direct are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite weak fundamental indicators, Morgan Stanley may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Contact Energy

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Contact Energy Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Contact Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Morgan Stanley and Contact Energy

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

The idea behind Morgan Stanley Direct and Contact Energy Limited 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.