Correlation Between Norsk Hydro and Aega ASA

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

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

Diversification Opportunities for Norsk Hydro and Aega ASA

-0.25

Correlation Coefficient

Norsk Hydro  Aega ASA

Very good diversification

The 3 months correlation between Norsk and Aega is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and Aega ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aega ASA and Norsk Hydro 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 Norsk Hydro ASA are associated (or correlated) with Aega ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aega ASA has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and Aega ASA go up and down completely randomly.

Pair Corralation between Norsk Hydro and Aega ASA

Assuming the 90 days trading horizon Norsk Hydro ASA is expected to under-perform the Aega ASA. But the stock apears to be less risky and, when comparing its historical volatility, Norsk Hydro ASA is 6.81 times less risky than Aega ASA. The stock trades about 0.0 of its potential returns per unit of risk. The Aega ASA is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  35.00  in Aega ASA on December 29, 2024 and sell it today you would lose (9.00) from holding Aega ASA or give up 25.71% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	75.0%
Values	Daily Returns

Norsk Hydro ASA  vs.  Aega ASA

Norsk Hydro ASA

Risk-Adjusted Performance

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 quite persistent basic indicators, Norsk Hydro is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Aega ASA

Risk-Adjusted Performance

Weak

Over the last 90 days Aega ASA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite unfluctuating essential indicators, Aega ASA disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Norsk Hydro and Aega ASA

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

The idea behind Norsk Hydro ASA and Aega 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.