Correlation Between Norsk Hydro and American Homes

Can any of the company-specific risk be diversified away by investing in both Norsk Hydro and American Homes 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 American Homes 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 American Homes 4, you can compare the effects of market volatilities on Norsk Hydro and American Homes 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 American Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Norsk Hydro and American Homes.

Diversification Opportunities for Norsk Hydro and American Homes

-0.48

Correlation Coefficient

Norsk Hydro  American Homes

Very good diversification

The 3 months correlation between Norsk and American is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and American Homes 4 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Homes 4 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 American Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Homes 4 has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and American Homes go up and down completely randomly.

Pair Corralation between Norsk Hydro and American Homes

Assuming the 90 days trading horizon Norsk Hydro ASA is expected to generate 1.15 times more return on investment than American Homes. However, Norsk Hydro is 1.15 times more volatile than American Homes 4. It trades about 0.04 of its potential returns per unit of risk. American Homes 4 is currently generating about 0.02 per unit of risk. If you would invest  528.00  in Norsk Hydro ASA on December 29, 2024 and sell it today you would earn a total of  23.00  from holding Norsk Hydro ASA or generate 4.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Norsk Hydro ASA  vs.  American Homes 4

Norsk Hydro ASA

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Norsk Hydro ASA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical indicators, Norsk Hydro is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

American Homes 4

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Homes 4 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, American Homes 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 American Homes

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

The idea behind Norsk Hydro ASA and American Homes 4 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.