Correlation Between California Resources and Norsk Hydro

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

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

Diversification Opportunities for California Resources and Norsk Hydro

0.42

Correlation Coefficient

California Resources  Norsk Hydro

Very weak diversification

The 3 months correlation between California and Norsk is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding California Resources Corp 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 California Resources 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 California Resources Corp 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 California Resources i.e., California Resources and Norsk Hydro go up and down completely randomly.

Pair Corralation between California Resources and Norsk Hydro

Considering the 90-day investment horizon California Resources is expected to generate 1.91 times less return on investment than Norsk Hydro. But when comparing it to its historical volatility, California Resources Corp is 1.06 times less risky than Norsk Hydro. It trades about 0.04 of its potential returns per unit of risk. Norsk Hydro ASA is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  752.00  in Norsk Hydro ASA on September 3, 2024 and sell it today you would earn a total of  49.00  from holding Norsk Hydro ASA or generate 6.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	8.08%
Values	Daily Returns

California Resources Corp  vs.  Norsk Hydro ASA

California Resources Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in California Resources Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, California Resources exhibited solid returns over the last few months and may actually be approaching a breakup point.

Norsk Hydro ASA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Norsk Hydro ASA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Norsk Hydro is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with California Resources and Norsk Hydro

The main advantage of trading using opposite California Resources and Norsk Hydro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if California Resources 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 California Resources Corp 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.