Correlation Between Orsted AS and Norsk Hydro

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

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

Diversification Opportunities for Orsted AS and Norsk Hydro

0.02

Correlation Coefficient

Orsted AS  Norsk Hydro

Significant diversification

The 3 months correlation between Orsted and Norsk is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Orsted AS 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 Orsted AS 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 Orsted AS 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 Orsted AS i.e., Orsted AS and Norsk Hydro go up and down completely randomly.

Pair Corralation between Orsted AS and Norsk Hydro

Assuming the 90 days horizon Orsted AS is expected to under-perform the Norsk Hydro. But the stock apears to be less risky and, when comparing its historical volatility, Orsted AS is 1.0 times less risky than Norsk Hydro. The stock trades about -0.21 of its potential returns per unit of risk. The Norsk Hydro ASA is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  579.00  in Norsk Hydro ASA on September 22, 2024 and sell it today you would lose (50.00) from holding Norsk Hydro ASA or give up 8.64% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	97.78%
Values	Daily Returns

Orsted AS  vs.  Norsk Hydro ASA

Orsted AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Orsted AS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Norsk Hydro ASA

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Norsk Hydro ASA are ranked lower than 1 (%) 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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Orsted AS and Norsk Hydro

The main advantage of trading using opposite Orsted AS and Norsk Hydro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Orsted AS 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 Orsted AS 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.