Correlation Between Norsk Hydro and Kaiser Aluminum

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

Diversification Opportunities for Norsk Hydro and Kaiser Aluminum

0.58

Correlation Coefficient

Norsk Hydro  Kaiser Aluminum

Very weak diversification

The 3 months correlation between Norsk and Kaiser is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and Kaiser Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kaiser Aluminum 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 Kaiser Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kaiser Aluminum has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and Kaiser Aluminum go up and down completely randomly.

Pair Corralation between Norsk Hydro and Kaiser Aluminum

If you would invest  6,958  in Kaiser Aluminum on September 3, 2024 and sell it today you would earn a total of  1,170  from holding Kaiser Aluminum or generate 16.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	1.56%
Values	Daily Returns

Norsk Hydro ASA  vs.  Kaiser Aluminum

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. In spite of fairly strong fundamental indicators, Norsk Hydro is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Kaiser Aluminum

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kaiser Aluminum are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady essential indicators, Kaiser Aluminum unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Norsk Hydro and Kaiser Aluminum

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

The idea behind Norsk Hydro ASA and Kaiser Aluminum 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.