Correlation Between Norsk Hydro and Aker ASA

Can any of the company-specific risk be diversified away by investing in both Norsk Hydro and Aker 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 Aker 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 Aker ASA, you can compare the effects of market volatilities on Norsk Hydro and Aker 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 Aker ASA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Norsk Hydro and Aker ASA.

Diversification Opportunities for Norsk Hydro and Aker ASA

0.3

Correlation Coefficient

Norsk Hydro  Aker ASA

Weak diversification

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

Pair Corralation between Norsk Hydro and Aker ASA

Assuming the 90 days trading horizon Norsk Hydro ASA is expected to under-perform the Aker ASA. In addition to that, Norsk Hydro is 1.46 times more volatile than Aker ASA. It trades about 0.0 of its total potential returns per unit of risk. Aker ASA is currently generating about 0.15 per unit of volatility. If you would invest  54,900  in Aker ASA on December 29, 2024 and sell it today you would earn a total of  7,600  from holding Aker ASA or generate 13.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Norsk Hydro ASA  vs.  Aker 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.

Aker ASA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aker ASA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Aker ASA disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Norsk Hydro and Aker ASA

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

The idea behind Norsk Hydro ASA and Aker 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.

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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.