Correlation Between Norwegian Air and Deep Value

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

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

Diversification Opportunities for Norwegian Air and Deep Value

-0.47

Correlation Coefficient

Norwegian Air  Deep Value

Very good diversification

The 3 months correlation between Norwegian and Deep is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Norwegian Air Shuttle and Deep Value Driller in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deep Value Driller and Norwegian Air 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 Norwegian Air Shuttle are associated (or correlated) with Deep Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deep Value Driller has no effect on the direction of Norwegian Air i.e., Norwegian Air and Deep Value go up and down completely randomly.

Pair Corralation between Norwegian Air and Deep Value

Assuming the 90 days trading horizon Norwegian Air is expected to generate 1.44 times less return on investment than Deep Value. But when comparing it to its historical volatility, Norwegian Air Shuttle is 2.24 times less risky than Deep Value. It trades about 0.04 of its potential returns per unit of risk. Deep Value Driller is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,511  in Deep Value Driller on December 21, 2024 and sell it today you would lose (11.00) from holding Deep Value Driller or give up 0.73% of portfolio value over 90 days.

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

Norwegian Air Shuttle  vs.  Deep Value Driller

Norwegian Air Shuttle

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Norwegian Air Shuttle are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Norwegian Air is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Deep Value Driller

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Deep Value Driller are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting fundamental indicators, Deep Value may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Norwegian Air and Deep Value

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

The idea behind Norwegian Air Shuttle and Deep Value Driller 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.

Check out your portfolio center.

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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.