Correlation Between Norsk Hydro and Air Transport

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

Diversification Opportunities for Norsk Hydro and Air Transport

-0.37

Correlation Coefficient

Norsk Hydro  Air Transport

Very good diversification

The 3 months correlation between Norsk and Air is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and Air Transport Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Transport Services 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 Air Transport. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Transport Services has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and Air Transport go up and down completely randomly.

Pair Corralation between Norsk Hydro and Air Transport

Assuming the 90 days trading horizon Norsk Hydro ASA is expected to generate 3.41 times more return on investment than Air Transport. However, Norsk Hydro is 3.41 times more volatile than Air Transport Services. It trades about 0.08 of its potential returns per unit of risk. Air Transport Services is currently generating about -0.08 per unit of risk. If you would invest  525.00  in Norsk Hydro ASA on December 21, 2024 and sell it today you would earn a total of  50.00  from holding Norsk Hydro ASA or generate 9.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Norsk Hydro ASA  vs.  Air Transport Services

Norsk Hydro ASA

Risk-Adjusted Performance

OK

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

Air Transport Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days Air Transport Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Air Transport 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 Air Transport

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

The idea behind Norsk Hydro ASA and Air Transport Services 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.