Correlation Between Nel ASA and ITM Power

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

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

Diversification Opportunities for Nel ASA and ITM Power

0.89

Correlation Coefficient

Nel ASA  ITM Power

Very poor diversification

The 3 months correlation between Nel and ITM is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Nel ASA and ITM Power Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITM Power Plc and Nel ASA 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 Nel ASA are associated (or correlated) with ITM Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITM Power Plc has no effect on the direction of Nel ASA i.e., Nel ASA and ITM Power go up and down completely randomly.

Pair Corralation between Nel ASA and ITM Power

Assuming the 90 days horizon Nel ASA is expected to under-perform the ITM Power. But the stock apears to be less risky and, when comparing its historical volatility, Nel ASA is 1.16 times less risky than ITM Power. The stock trades about -0.43 of its potential returns per unit of risk. The ITM Power Plc is currently generating about -0.18 of returns per unit of risk over similar time horizon. If you would invest  49.00  in ITM Power Plc on September 4, 2024 and sell it today you would lose (10.00) from holding ITM Power Plc or give up 20.41% of portfolio value over 90 days.

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

Nel ASA  vs.  ITM Power Plc

Nel ASA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nel ASA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile 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.

ITM Power Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ITM Power Plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile 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.

Pair Trading with Nel ASA and ITM Power

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

The idea behind Nel ASA and ITM Power Plc 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.