Correlation Between Norsk Hydro and MACOM Technology

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

Diversification Opportunities for Norsk Hydro and MACOM Technology

0.49

Correlation Coefficient

Norsk Hydro  MACOM Technology

Very weak diversification

The 3 months correlation between Norsk and MACOM is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and MACOM Technology Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MACOM Technology Sol 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 MACOM Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MACOM Technology Sol has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and MACOM Technology go up and down completely randomly.

Pair Corralation between Norsk Hydro and MACOM Technology

Assuming the 90 days trading horizon Norsk Hydro is expected to generate 1.7 times less return on investment than MACOM Technology. In addition to that, Norsk Hydro is 1.54 times more volatile than MACOM Technology Solutions. It trades about 0.03 of its total potential returns per unit of risk. MACOM Technology Solutions is currently generating about 0.08 per unit of volatility. If you would invest  5,700  in MACOM Technology Solutions on September 18, 2024 and sell it today you would earn a total of  7,700  from holding MACOM Technology Solutions or generate 135.09% return on investment over 90 days.

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

Norsk Hydro ASA  vs.  MACOM Technology Solutions

Norsk Hydro ASA

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Norsk Hydro ASA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, Norsk Hydro may actually be approaching a critical reversion point that can send shares even higher in January 2025.

MACOM Technology Sol

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MACOM Technology Solutions are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, MACOM Technology reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Norsk Hydro and MACOM Technology

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

The idea behind Norsk Hydro ASA and MACOM Technology Solutions 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.