Correlation Between Norsk Hydro and Barrick Gold

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

Diversification Opportunities for Norsk Hydro and Barrick Gold

-0.33

Correlation Coefficient

Norsk Hydro  Barrick Gold

Very good diversification

The 3 months correlation between Norsk and Barrick is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and Barrick Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barrick Gold 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 Barrick Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Barrick Gold has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and Barrick Gold go up and down completely randomly.

Pair Corralation between Norsk Hydro and Barrick Gold

Assuming the 90 days trading horizon Norsk Hydro is expected to generate 1.56 times less return on investment than Barrick Gold. In addition to that, Norsk Hydro is 1.27 times more volatile than Barrick Gold. It trades about 0.03 of its total potential returns per unit of risk. Barrick Gold is currently generating about 0.05 per unit of volatility. If you would invest  1,473  in Barrick Gold on September 12, 2024 and sell it today you would earn a total of  162.00  from holding Barrick Gold or generate 11.0% return on investment over 90 days.

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

Norsk Hydro ASA  vs.  Barrick Gold

Norsk Hydro ASA

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Norsk Hydro ASA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, Norsk Hydro reported solid returns over the last few months and may actually be approaching a breakup point.

Barrick Gold

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Barrick Gold has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Norsk Hydro and Barrick Gold

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

The idea behind Norsk Hydro ASA and Barrick Gold 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.