Correlation Between Deckers Outdoor and Norsk Hydro

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Can any of the company-specific risk be diversified away by investing in both Deckers Outdoor 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 Deckers Outdoor and Norsk Hydro into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Deckers Outdoor and Norsk Hydro ASA, you can compare the effects of market volatilities on Deckers Outdoor 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 Deckers Outdoor with a short position of Norsk Hydro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deckers Outdoor and Norsk Hydro.

Diversification Opportunities for Deckers Outdoor and Norsk Hydro

0.4
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Deckers and Norsk is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Deckers Outdoor 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 Deckers Outdoor 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 Deckers Outdoor 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 Deckers Outdoor i.e., Deckers Outdoor and Norsk Hydro go up and down completely randomly.

Pair Corralation between Deckers Outdoor and Norsk Hydro

Assuming the 90 days horizon Deckers Outdoor is expected to generate 1.63 times more return on investment than Norsk Hydro. However, Deckers Outdoor is 1.63 times more volatile than Norsk Hydro ASA. It trades about 0.3 of its potential returns per unit of risk. Norsk Hydro ASA is currently generating about -0.26 per unit of risk. If you would invest  16,885  in Deckers Outdoor on September 17, 2024 and sell it today you would earn a total of  2,565  from holding Deckers Outdoor or generate 15.19% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy95.45%
ValuesDaily Returns

Deckers Outdoor  vs.  Norsk Hydro ASA

 Performance 
       Timeline  
Deckers Outdoor 

Risk-Adjusted Performance

14 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Deckers Outdoor are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Deckers Outdoor reported solid returns over the last few months and may actually be approaching a breakup point.
Norsk Hydro ASA 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
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 fragile technical indicators, Norsk Hydro may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Deckers Outdoor and Norsk Hydro Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Deckers Outdoor and Norsk Hydro

The main advantage of trading using opposite Deckers Outdoor and Norsk Hydro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Deckers Outdoor 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 Deckers Outdoor 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..

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