Correlation Between Norsk Hydro and Allianz SE

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

Diversification Opportunities for Norsk Hydro and Allianz SE

0.67

Correlation Coefficient

Norsk Hydro  Allianz SE

Poor diversification

The 3 months correlation between Norsk and Allianz is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and Allianz SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allianz SE 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 Allianz SE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allianz SE has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and Allianz SE go up and down completely randomly.

Pair Corralation between Norsk Hydro and Allianz SE

Assuming the 90 days trading horizon Norsk Hydro is expected to generate 3.38 times less return on investment than Allianz SE. In addition to that, Norsk Hydro is 2.38 times more volatile than Allianz SE. It trades about 0.04 of its total potential returns per unit of risk. Allianz SE is currently generating about 0.34 per unit of volatility. If you would invest  29,560  in Allianz SE on December 29, 2024 and sell it today you would earn a total of  6,210  from holding Allianz SE or generate 21.01% return on investment over 90 days.

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

Norsk Hydro ASA  vs.  Allianz SE

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.

Allianz SE

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Allianz SE are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Allianz SE reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Norsk Hydro and Allianz SE

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

The idea behind Norsk Hydro ASA and Allianz SE 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.