Correlation Between Norsk Hydro and BW LPG

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

Diversification Opportunities for Norsk Hydro and BW LPG

0.45

Correlation Coefficient

Norsk Hydro  BW LPG

Very weak diversification

The 3 months correlation between Norsk and BW9 is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and BW LPG Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BW LPG Limited 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 BW LPG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BW LPG Limited has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and BW LPG go up and down completely randomly.

Pair Corralation between Norsk Hydro and BW LPG

Assuming the 90 days trading horizon Norsk Hydro is expected to generate 2.31 times less return on investment than BW LPG. In addition to that, Norsk Hydro is 1.16 times more volatile than BW LPG Limited. It trades about 0.03 of its total potential returns per unit of risk. BW LPG Limited is currently generating about 0.07 per unit of volatility. If you would invest  442.00  in BW LPG Limited on October 5, 2024 and sell it today you would earn a total of  615.00  from holding BW LPG Limited or generate 139.14% return on investment over 90 days.

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

Norsk Hydro ASA  vs.  BW LPG Limited

Norsk Hydro ASA

Risk-Adjusted Performance

0 of 100

Very Weak

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

BW LPG Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BW LPG Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Norsk Hydro and BW LPG

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

The idea behind Norsk Hydro ASA and BW LPG Limited 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.