Correlation Between Norsk Hydro and Aptiv PLC

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

Diversification Opportunities for Norsk Hydro and Aptiv PLC

-0.16

Correlation Coefficient

Norsk Hydro  Aptiv PLC

Good diversification

The 3 months correlation between Norsk and Aptiv is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and Aptiv PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aptiv PLC 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 Aptiv PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aptiv PLC has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and Aptiv PLC go up and down completely randomly.

Pair Corralation between Norsk Hydro and Aptiv PLC

Assuming the 90 days trading horizon Norsk Hydro ASA is expected to under-perform the Aptiv PLC. In addition to that, Norsk Hydro is 1.41 times more volatile than Aptiv PLC. It trades about -0.47 of its total potential returns per unit of risk. Aptiv PLC is currently generating about 0.32 per unit of volatility. If you would invest  5,240  in Aptiv PLC on October 1, 2024 and sell it today you would earn a total of  247.00  from holding Aptiv PLC or generate 4.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.44%
Values	Daily Returns

Norsk Hydro ASA  vs.  Aptiv PLC

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 uncertain 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.

Aptiv PLC

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Norsk Hydro and Aptiv PLC

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

The idea behind Norsk Hydro ASA and Aptiv PLC 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.