Correlation Between Norwegian Air and Hershey

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

Diversification Opportunities for Norwegian Air and Hershey

0.58

Correlation Coefficient

Norwegian Air  Hershey

Very weak diversification

The 3 months correlation between Norwegian and Hershey is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Norwegian Air Shuttle and Hershey Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hershey 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 Hershey. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hershey has no effect on the direction of Norwegian Air i.e., Norwegian Air and Hershey go up and down completely randomly.

Pair Corralation between Norwegian Air and Hershey

Assuming the 90 days trading horizon Norwegian Air Shuttle is expected to generate 0.86 times more return on investment than Hershey. However, Norwegian Air Shuttle is 1.16 times less risky than Hershey. It trades about 0.05 of its potential returns per unit of risk. Hershey Co is currently generating about 0.02 per unit of risk. If you would invest  1,104  in Norwegian Air Shuttle on December 4, 2024 and sell it today you would earn a total of  55.00  from holding Norwegian Air Shuttle or generate 4.98% return on investment over 90 days.

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

Norwegian Air Shuttle  vs.  Hershey Co

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 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Norwegian Air may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Hershey

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hershey Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Hershey 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 Hershey

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

The idea behind Norwegian Air Shuttle and Hershey Co 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.