Correlation Between Norfolk Southern and Norsk Hydro

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

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

Diversification Opportunities for Norfolk Southern and Norsk Hydro

0.45

Correlation Coefficient

Norfolk Southern  Norsk Hydro

Very weak diversification

The 3 months correlation between Norfolk and Norsk is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Norfolk Southern 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 Norfolk Southern 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 Norfolk Southern 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 Norfolk Southern i.e., Norfolk Southern and Norsk Hydro go up and down completely randomly.

Pair Corralation between Norfolk Southern and Norsk Hydro

Assuming the 90 days horizon Norfolk Southern is expected to generate 4.99 times less return on investment than Norsk Hydro. But when comparing it to its historical volatility, Norfolk Southern is 2.55 times less risky than Norsk Hydro. It trades about 0.03 of its potential returns per unit of risk. Norsk Hydro ASA is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  305.00  in Norsk Hydro ASA on October 5, 2024 and sell it today you would earn a total of  223.00  from holding Norsk Hydro ASA or generate 73.11% return on investment over 90 days.

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

Norfolk Southern  vs.  Norsk Hydro ASA

Norfolk Southern

Risk-Adjusted Performance

0 of 100

Weak

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

Norsk Hydro ASA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Norsk Hydro ASA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Norfolk Southern and Norsk Hydro

The main advantage of trading using opposite Norfolk Southern and Norsk Hydro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Norfolk Southern 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 Norfolk Southern 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.