Correlation Between Constellium and Norsk Hydro

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

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

Diversification Opportunities for Constellium and Norsk Hydro

0.53

Correlation Coefficient

Constellium  Norsk Hydro

Very weak diversification

The 3 months correlation between Constellium and Norsk is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Constellium Nv 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 Constellium 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 Constellium Nv 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 Constellium i.e., Constellium and Norsk Hydro go up and down completely randomly.

Pair Corralation between Constellium and Norsk Hydro

Given the investment horizon of 90 days Constellium is expected to generate 1.9 times less return on investment than Norsk Hydro. In addition to that, Constellium is 1.13 times more volatile than Norsk Hydro ASA. It trades about 0.05 of its total potential returns per unit of risk. Norsk Hydro ASA is currently generating about 0.1 per unit of volatility. If you would invest  554.00  in Norsk Hydro ASA on December 27, 2024 and sell it today you would earn a total of  92.00  from holding Norsk Hydro ASA or generate 16.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

Constellium Nv  vs.  Norsk Hydro ASA

Constellium Nv

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Constellium Nv are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Constellium may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Norsk Hydro ASA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Norsk Hydro ASA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating forward-looking signals, Norsk Hydro reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Constellium and Norsk Hydro

The main advantage of trading using opposite Constellium and Norsk Hydro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Constellium 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 Constellium Nv 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.

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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.