Correlation Between Norsk Hydro and Palo Alto

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

Diversification Opportunities for Norsk Hydro and Palo Alto

0.03

Correlation Coefficient

Norsk Hydro  Palo Alto

Significant diversification

The 3 months correlation between Norsk and Palo is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and Palo Alto Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Palo Alto Networks 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 Palo Alto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Palo Alto Networks has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and Palo Alto go up and down completely randomly.

Pair Corralation between Norsk Hydro and Palo Alto

Assuming the 90 days trading horizon Norsk Hydro ASA is expected to under-perform the Palo Alto. But the stock apears to be less risky and, when comparing its historical volatility, Norsk Hydro ASA is 1.7 times less risky than Palo Alto. The stock trades about -0.55 of its potential returns per unit of risk. The Palo Alto Networks is currently generating about -0.23 of returns per unit of risk over similar time horizon. If you would invest  19,218  in Palo Alto Networks on October 5, 2024 and sell it today you would lose (1,530) from holding Palo Alto Networks or give up 7.96% of portfolio value over 90 days.

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

Norsk Hydro ASA  vs.  Palo Alto Networks

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. Despite latest fragile performance, the Stock's technical indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Palo Alto Networks

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Palo Alto Networks has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Palo Alto reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Norsk Hydro and Palo Alto

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

The idea behind Norsk Hydro ASA and Palo Alto Networks 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.