Correlation Between Morgan Stanley and NewMed Energy

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

Diversification Opportunities for Morgan Stanley and NewMed Energy

0.8

Correlation Coefficient

Morgan Stanley  NewMed Energy

Very poor diversification

The 3 months correlation between Morgan and NewMed is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and NewMed Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NewMed 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 NewMed Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NewMed Energy has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and NewMed Energy go up and down completely randomly.

Pair Corralation between Morgan Stanley and NewMed Energy

Given the investment horizon of 90 days Morgan Stanley is expected to generate 3.38 times less return on investment than NewMed Energy. But when comparing it to its historical volatility, Morgan Stanley Direct is 1.71 times less risky than NewMed Energy. It trades about 0.12 of its potential returns per unit of risk. NewMed Energy is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  94,071  in NewMed Energy on September 25, 2024 and sell it today you would earn a total of  18,829  from holding NewMed Energy or generate 20.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	71.43%
Values	Daily Returns

Morgan Stanley Direct  vs.  NewMed Energy

Morgan Stanley Direct

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley Direct are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain fundamental indicators, Morgan Stanley may actually be approaching a critical reversion point that can send shares even higher in January 2025.

NewMed Energy

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in NewMed Energy are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, NewMed Energy sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Morgan Stanley and NewMed Energy

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

The idea behind Morgan Stanley Direct and NewMed Energy 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.