Correlation Between Nordic Semiconductor and Polight ASA

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

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

Diversification Opportunities for Nordic Semiconductor and Polight ASA

-0.71

Correlation Coefficient

Nordic Semiconductor  Polight ASA

Pay attention - limited upside

The 3 months correlation between Nordic and Polight is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Nordic Semiconductor ASA and Polight ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Polight ASA and Nordic Semiconductor 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 Nordic Semiconductor ASA are associated (or correlated) with Polight ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Polight ASA has no effect on the direction of Nordic Semiconductor i.e., Nordic Semiconductor and Polight ASA go up and down completely randomly.

Pair Corralation between Nordic Semiconductor and Polight ASA

Assuming the 90 days trading horizon Nordic Semiconductor ASA is expected to generate 0.95 times more return on investment than Polight ASA. However, Nordic Semiconductor ASA is 1.05 times less risky than Polight ASA. It trades about 0.13 of its potential returns per unit of risk. Polight ASA is currently generating about -0.19 per unit of risk. If you would invest  10,185  in Nordic Semiconductor ASA on December 27, 2024 and sell it today you would earn a total of  2,920  from holding Nordic Semiconductor ASA or generate 28.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Nordic Semiconductor ASA  vs.  Polight ASA

Nordic Semiconductor ASA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nordic Semiconductor ASA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting fundamental indicators, Nordic Semiconductor disclosed solid returns over the last few months and may actually be approaching a breakup point.

Polight ASA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Polight ASA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Nordic Semiconductor and Polight ASA

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

The idea behind Nordic Semiconductor ASA and Polight 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.