Correlation Between Norsk Hydro and CSX

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

Diversification Opportunities for Norsk Hydro and CSX

0.45

Correlation Coefficient

Norsk Hydro  CSX

Very weak diversification

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

Pair Corralation between Norsk Hydro and CSX

Assuming the 90 days trading horizon Norsk Hydro ASA is expected to under-perform the CSX. But the stock apears to be less risky and, when comparing its historical volatility, Norsk Hydro ASA is 1.01 times less risky than CSX. The stock trades about -0.19 of its potential returns per unit of risk. The CSX Corporation is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  3,316  in CSX Corporation on September 17, 2024 and sell it today you would lose (121.00) from holding CSX Corporation or give up 3.65% of portfolio value over 90 days.

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

Norsk Hydro ASA  vs.  CSX Corp.

Norsk Hydro ASA

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Norsk Hydro ASA are ranked lower than 4 (%) 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 January 2025.

CSX Corporation

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CSX Corporation are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, CSX 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 CSX

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

The idea behind Norsk Hydro ASA and CSX Corporation 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.