Correlation Between Morgan Stanley and Entergy

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

Diversification Opportunities for Morgan Stanley and Entergy

0.82

Correlation Coefficient

Morgan Stanley  Entergy

Very poor diversification

The 3 months correlation between Morgan and Entergy is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and Entergy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Entergy 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 Entergy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Entergy has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and Entergy go up and down completely randomly.

Pair Corralation between Morgan Stanley and Entergy

Given the investment horizon of 90 days Morgan Stanley is expected to generate 3.78 times less return on investment than Entergy. But when comparing it to its historical volatility, Morgan Stanley Direct is 2.45 times less risky than Entergy. It trades about 0.09 of its potential returns per unit of risk. Entergy is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  5,750  in Entergy on September 21, 2024 and sell it today you would earn a total of  1,300  from holding Entergy or generate 22.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Morgan Stanley Direct  vs.  Entergy

Morgan Stanley Direct

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley Direct are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, Morgan Stanley is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Entergy

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Entergy are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Entergy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Morgan Stanley and Entergy

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

The idea behind Morgan Stanley Direct and Entergy 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.