Correlation Between Franco Nevada and Norsk Hydro

Can any of the company-specific risk be diversified away by investing in both Franco Nevada and Norsk Hydro 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 Franco Nevada and Norsk Hydro into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Franco Nevada and Norsk Hydro ASA, you can compare the effects of market volatilities on Franco Nevada and Norsk Hydro 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 Franco Nevada with a short position of Norsk Hydro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franco Nevada and Norsk Hydro.

Diversification Opportunities for Franco Nevada and Norsk Hydro

0.72

Correlation Coefficient

Franco Nevada  Norsk Hydro

Poor diversification

The 3 months correlation between Franco and Norsk is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Franco Nevada and Norsk Hydro ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norsk Hydro ASA and Franco Nevada 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 Franco Nevada are associated (or correlated) with Norsk Hydro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Norsk Hydro ASA has no effect on the direction of Franco Nevada i.e., Franco Nevada and Norsk Hydro go up and down completely randomly.

Pair Corralation between Franco Nevada and Norsk Hydro

Assuming the 90 days horizon Franco Nevada is expected to generate 0.76 times more return on investment than Norsk Hydro. However, Franco Nevada is 1.32 times less risky than Norsk Hydro. It trades about 0.24 of its potential returns per unit of risk. Norsk Hydro ASA is currently generating about 0.04 per unit of risk. If you would invest  11,321  in Franco Nevada on December 29, 2024 and sell it today you would earn a total of  3,024  from holding Franco Nevada or generate 26.71% return on investment over 90 days.

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

Franco Nevada  vs.  Norsk Hydro ASA

Franco Nevada

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Franco Nevada are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Franco Nevada reported solid returns over the last few months and may actually be approaching a breakup point.

Norsk Hydro ASA

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Norsk Hydro ASA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical indicators, Norsk Hydro is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Franco Nevada and Norsk Hydro

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

The idea behind Franco Nevada and Norsk Hydro ASA 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.