Correlation Between Norsk Hydro and Heineken Holding

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

Diversification Opportunities for Norsk Hydro and Heineken Holding

-0.48

Correlation Coefficient

Norsk Hydro  Heineken Holding

Very good diversification

The 3 months correlation between Norsk and Heineken is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and Heineken Holding NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heineken Holding 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 Heineken Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heineken Holding has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and Heineken Holding go up and down completely randomly.

Pair Corralation between Norsk Hydro and Heineken Holding

Assuming the 90 days trading horizon Norsk Hydro ASA is expected to under-perform the Heineken Holding. In addition to that, Norsk Hydro is 1.49 times more volatile than Heineken Holding NV. It trades about -0.19 of its total potential returns per unit of risk. Heineken Holding NV is currently generating about -0.19 per unit of volatility. If you would invest  6,115  in Heineken Holding NV on September 17, 2024 and sell it today you would lose (225.00) from holding Heineken Holding NV or give up 3.68% of portfolio value over 90 days.

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

Norsk Hydro ASA  vs.  Heineken Holding NV

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.

Heineken Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Heineken Holding NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Norsk Hydro and Heineken Holding

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

The idea behind Norsk Hydro ASA and Heineken Holding NV 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.