Correlation Between Norsk Hydro and SoftOx Solutions

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

Diversification Opportunities for Norsk Hydro and SoftOx Solutions

-0.02

Correlation Coefficient

Norsk Hydro  SoftOx Solutions

Good diversification

The 3 months correlation between Norsk and SoftOx is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and SoftOx Solutions AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SoftOx Solutions 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 SoftOx Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SoftOx Solutions has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and SoftOx Solutions go up and down completely randomly.

Pair Corralation between Norsk Hydro and SoftOx Solutions

Assuming the 90 days trading horizon Norsk Hydro ASA is expected to under-perform the SoftOx Solutions. But the stock apears to be less risky and, when comparing its historical volatility, Norsk Hydro ASA is 17.42 times less risky than SoftOx Solutions. The stock trades about 0.0 of its potential returns per unit of risk. The SoftOx Solutions AS is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1.16  in SoftOx Solutions AS on November 29, 2024 and sell it today you would earn a total of  2.18  from holding SoftOx Solutions AS or generate 187.93% return on investment over 90 days.

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

Norsk Hydro ASA  vs.  SoftOx Solutions AS

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.

SoftOx Solutions

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SoftOx Solutions AS are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, SoftOx Solutions displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Norsk Hydro and SoftOx Solutions

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

The idea behind Norsk Hydro ASA and SoftOx Solutions AS 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.