Correlation Between Heidelberg Materials and Norwegian Air

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

By analyzing existing cross correlation between Heidelberg Materials AG and Norwegian Air Shuttle, you can compare the effects of market volatilities on Heidelberg Materials and Norwegian Air 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 Heidelberg Materials with a short position of Norwegian Air. Check out your portfolio center. Please also check ongoing floating volatility patterns of Heidelberg Materials and Norwegian Air.

Diversification Opportunities for Heidelberg Materials and Norwegian Air

-0.3

Correlation Coefficient

Heidelberg Materials  Norwegian Air

Very good diversification

The 3 months correlation between Heidelberg and Norwegian is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Heidelberg Materials AG and Norwegian Air Shuttle in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norwegian Air Shuttle and Heidelberg Materials 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 Heidelberg Materials AG are associated (or correlated) with Norwegian Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Norwegian Air Shuttle has no effect on the direction of Heidelberg Materials i.e., Heidelberg Materials and Norwegian Air go up and down completely randomly.

Pair Corralation between Heidelberg Materials and Norwegian Air

Assuming the 90 days horizon Heidelberg Materials is expected to generate 2.61 times less return on investment than Norwegian Air. But when comparing it to its historical volatility, Heidelberg Materials AG is 2.03 times less risky than Norwegian Air. It trades about 0.02 of its potential returns per unit of risk. Norwegian Air Shuttle is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  93.00  in Norwegian Air Shuttle on September 23, 2024 and sell it today you would earn a total of  1.00  from holding Norwegian Air Shuttle or generate 1.08% return on investment over 90 days.

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

Heidelberg Materials AG  vs.  Norwegian Air Shuttle

Heidelberg Materials

Risk-Adjusted Performance

14 of 100

Good

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

Norwegian Air Shuttle

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Norwegian Air Shuttle has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Norwegian Air is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Heidelberg Materials and Norwegian Air

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

The idea behind Heidelberg Materials AG and Norwegian Air Shuttle 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.