Correlation Between First Quantum and Norsk Hydro

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

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

Diversification Opportunities for First Quantum and Norsk Hydro

0.48

Correlation Coefficient

First Quantum  Norsk Hydro

Very weak diversification

The 3 months correlation between First and Norsk is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding First Quantum Minerals 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 First Quantum 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 First Quantum Minerals 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 First Quantum i.e., First Quantum and Norsk Hydro go up and down completely randomly.

Pair Corralation between First Quantum and Norsk Hydro

Assuming the 90 days horizon First Quantum Minerals is expected to generate 1.27 times more return on investment than Norsk Hydro. However, First Quantum is 1.27 times more volatile than Norsk Hydro ASA. It trades about 0.04 of its potential returns per unit of risk. Norsk Hydro ASA is currently generating about -0.05 per unit of risk. If you would invest  1,196  in First Quantum Minerals on September 19, 2024 and sell it today you would earn a total of  36.00  from holding First Quantum Minerals or generate 3.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.67%
Values	Daily Returns

First Quantum Minerals  vs.  Norsk Hydro ASA

First Quantum Minerals

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Quantum Minerals are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, First Quantum may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Norsk Hydro ASA

Risk-Adjusted Performance

1 of 100

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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with First Quantum and Norsk Hydro

The main advantage of trading using opposite First Quantum and Norsk Hydro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Quantum 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 First Quantum Minerals 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.