Correlation Between Norwegian Air and Air Products

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

Diversification Opportunities for Norwegian Air and Air Products

-0.11

Correlation Coefficient

Norwegian Air  Air Products

Good diversification

The 3 months correlation between Norwegian and Air is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Norwegian Air Shuttle and Air Products Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Products Chemicals 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 Air Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Products Chemicals has no effect on the direction of Norwegian Air i.e., Norwegian Air and Air Products go up and down completely randomly.

Pair Corralation between Norwegian Air and Air Products

Assuming the 90 days trading horizon Norwegian Air Shuttle is expected to generate 1.62 times more return on investment than Air Products. However, Norwegian Air is 1.62 times more volatile than Air Products Chemicals. It trades about 0.24 of its potential returns per unit of risk. Air Products Chemicals is currently generating about -0.23 per unit of risk. If you would invest  1,030  in Norwegian Air Shuttle on December 4, 2024 and sell it today you would earn a total of  129.00  from holding Norwegian Air Shuttle or generate 12.52% return on investment over 90 days.

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

Norwegian Air Shuttle  vs.  Air Products Chemicals

Norwegian Air Shuttle

Risk-Adjusted Performance

Insignificant

Over the last 90 days Norwegian Air Shuttle has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Norwegian Air is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Air Products Chemicals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Air Products Chemicals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Air Products is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Norwegian Air and Air Products

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

The idea behind Norwegian Air Shuttle and Air Products Chemicals 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.