Correlation Between Norsk Hydro and AutoZone

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

Diversification Opportunities for Norsk Hydro and AutoZone

0.31

Correlation Coefficient

Norsk Hydro  AutoZone

Weak diversification

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

Pair Corralation between Norsk Hydro and AutoZone

Assuming the 90 days trading horizon Norsk Hydro is expected to generate 2.48 times less return on investment than AutoZone. In addition to that, Norsk Hydro is 1.68 times more volatile than AutoZone. It trades about 0.04 of its total potential returns per unit of risk. AutoZone is currently generating about 0.17 per unit of volatility. If you would invest  308,500  in AutoZone on December 30, 2024 and sell it today you would earn a total of  45,300  from holding AutoZone or generate 14.68% return on investment over 90 days.

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

Norsk Hydro ASA  vs.  AutoZone

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

AutoZone

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AutoZone are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, AutoZone reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Norsk Hydro and AutoZone

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

The idea behind Norsk Hydro ASA and AutoZone 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.