Correlation Between Norsk Hydro and Bergenbio ASA

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

Diversification Opportunities for Norsk Hydro and Bergenbio ASA

-0.13

Correlation Coefficient

Norsk Hydro  Bergenbio ASA

Good diversification

The 3 months correlation between Norsk and Bergenbio is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and Bergenbio ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bergenbio 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 Bergenbio ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bergenbio ASA has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and Bergenbio ASA go up and down completely randomly.

Pair Corralation between Norsk Hydro and Bergenbio ASA

Assuming the 90 days trading horizon Norsk Hydro is expected to generate 1.25 times less return on investment than Bergenbio ASA. But when comparing it to its historical volatility, Norsk Hydro ASA is 3.85 times less risky than Bergenbio ASA. It trades about 0.1 of its potential returns per unit of risk. Bergenbio ASA is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,110  in Bergenbio ASA on September 2, 2024 and sell it today you would lose (23.00) from holding Bergenbio ASA or give up 2.07% of portfolio value over 90 days.

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

Norsk Hydro ASA  vs.  Bergenbio ASA

Norsk Hydro ASA

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Norsk Hydro ASA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Norsk Hydro disclosed solid returns over the last few months and may actually be approaching a breakup point.

Bergenbio ASA

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bergenbio ASA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Bergenbio ASA displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Norsk Hydro and Bergenbio ASA

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

The idea behind Norsk Hydro ASA and Bergenbio 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.