Correlation Between Norsk Hydro and Data#3

Can any of the company-specific risk be diversified away by investing in both Norsk Hydro and Data#3 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 Data#3 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 Data3 Limited, you can compare the effects of market volatilities on Norsk Hydro and Data#3 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 Data#3. Check out your portfolio center. Please also check ongoing floating volatility patterns of Norsk Hydro and Data#3.

Diversification Opportunities for Norsk Hydro and Data#3

0.7

Correlation Coefficient

Norsk Hydro  Data#3

Poor diversification

The 3 months correlation between Norsk and Data#3 is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and Data3 Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Data3 Limited 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 Data#3. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Data3 Limited has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and Data#3 go up and down completely randomly.

Pair Corralation between Norsk Hydro and Data#3

Assuming the 90 days trading horizon Norsk Hydro ASA is expected to under-perform the Data#3. But the stock apears to be less risky and, when comparing its historical volatility, Norsk Hydro ASA is 1.26 times less risky than Data#3. The stock trades about -0.04 of its potential returns per unit of risk. The Data3 Limited is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  408.00  in Data3 Limited on December 2, 2024 and sell it today you would earn a total of  44.00  from holding Data3 Limited or generate 10.78% return on investment over 90 days.

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

Norsk Hydro ASA  vs.  Data3 Limited

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 nearly stable technical indicators, Norsk Hydro is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Data3 Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Data3 Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Data#3 is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Norsk Hydro and Data#3

The main advantage of trading using opposite Norsk Hydro and Data#3 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Norsk Hydro position performs unexpectedly, Data#3 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 Data#3 will offset losses from the drop in Data#3's long position.

The idea behind Norsk Hydro ASA and Data3 Limited 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.