Correlation Between Norsk Hydro and BII Railway

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

Diversification Opportunities for Norsk Hydro and BII Railway

-0.31

Correlation Coefficient

Norsk Hydro  BII Railway

Very good diversification

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

Pair Corralation between Norsk Hydro and BII Railway

Assuming the 90 days trading horizon Norsk Hydro is expected to generate 1.2 times less return on investment than BII Railway. But when comparing it to its historical volatility, Norsk Hydro ASA is 1.17 times less risky than BII Railway. It trades about 0.09 of its potential returns per unit of risk. BII Railway Transportation is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2.75  in BII Railway Transportation on December 3, 2024 and sell it today you would earn a total of  0.10  from holding BII Railway Transportation or generate 3.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Norsk Hydro ASA  vs.  BII Railway Transportation

Norsk Hydro ASA

Risk-Adjusted Performance

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 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.

BII Railway Transpor

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BII Railway Transportation are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, BII Railway may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Norsk Hydro and BII Railway

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

The idea behind Norsk Hydro ASA and BII Railway Transportation 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.