Correlation Between Norwegian Air and Finnair Oyj

Can any of the company-specific risk be diversified away by investing in both Norwegian Air and Finnair Oyj 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 Norwegian Air and Finnair Oyj into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Norwegian Air Shuttle and Finnair Oyj, you can compare the effects of market volatilities on Norwegian Air and Finnair Oyj 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 Norwegian Air with a short position of Finnair Oyj. Check out your portfolio center. Please also check ongoing floating volatility patterns of Norwegian Air and Finnair Oyj.

Diversification Opportunities for Norwegian Air and Finnair Oyj

0.21

Correlation Coefficient

Norwegian Air  Finnair Oyj

Modest diversification

The 3 months correlation between Norwegian and Finnair is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Norwegian Air Shuttle and Finnair Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Finnair Oyj and Norwegian Air 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 Norwegian Air Shuttle are associated (or correlated) with Finnair Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Finnair Oyj has no effect on the direction of Norwegian Air i.e., Norwegian Air and Finnair Oyj go up and down completely randomly.

Pair Corralation between Norwegian Air and Finnair Oyj

Assuming the 90 days trading horizon Norwegian Air is expected to generate 3.56 times less return on investment than Finnair Oyj. But when comparing it to its historical volatility, Norwegian Air Shuttle is 1.36 times less risky than Finnair Oyj. It trades about 0.07 of its potential returns per unit of risk. Finnair Oyj is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  218.00  in Finnair Oyj on November 20, 2024 and sell it today you would earn a total of  88.00  from holding Finnair Oyj or generate 40.37% return on investment over 90 days.

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

Norwegian Air Shuttle  vs.  Finnair Oyj

Norwegian Air Shuttle

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Norwegian Air Shuttle are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Norwegian Air may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Finnair Oyj

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Finnair Oyj are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Finnair Oyj unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Norwegian Air and Finnair Oyj

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

The idea behind Norwegian Air Shuttle and Finnair Oyj 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.