Correlation Between Norsk Hydro and Freshpet

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

Diversification Opportunities for Norsk Hydro and Freshpet

0.31

Correlation Coefficient

Norsk Hydro  Freshpet

Weak diversification

The 3 months correlation between Norsk and Freshpet is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and Freshpet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freshpet 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 Freshpet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freshpet has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and Freshpet go up and down completely randomly.

Pair Corralation between Norsk Hydro and Freshpet

Assuming the 90 days trading horizon Norsk Hydro ASA is expected to under-perform the Freshpet. In addition to that, Norsk Hydro is 1.52 times more volatile than Freshpet. It trades about -0.06 of its total potential returns per unit of risk. Freshpet is currently generating about 0.05 per unit of volatility. If you would invest  13,910  in Freshpet on October 6, 2024 and sell it today you would earn a total of  365.00  from holding Freshpet or generate 2.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	97.5%
Values	Daily Returns

Norsk Hydro ASA  vs.  Freshpet

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 uncertain 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.

Freshpet

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Freshpet are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Freshpet may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Norsk Hydro and Freshpet

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

The idea behind Norsk Hydro ASA and Freshpet 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.