Correlation Between Norsk Hydro and DENSO P

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

Diversification Opportunities for Norsk Hydro and DENSO P

0.47

Correlation Coefficient

Norsk Hydro  DENSO P

Very weak diversification

The 3 months correlation between Norsk and DENSO is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and DENSO P ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DENSO P ADR 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 DENSO P. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DENSO P ADR has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and DENSO P go up and down completely randomly.

Pair Corralation between Norsk Hydro and DENSO P

Assuming the 90 days trading horizon Norsk Hydro ASA is expected to under-perform the DENSO P. But the stock apears to be less risky and, when comparing its historical volatility, Norsk Hydro ASA is 1.11 times less risky than DENSO P. The stock trades about -0.61 of its potential returns per unit of risk. The DENSO P ADR is currently generating about -0.27 of returns per unit of risk over similar time horizon. If you would invest  1,350  in DENSO P ADR on September 21, 2024 and sell it today you would lose (110.00) from holding DENSO P ADR or give up 8.15% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

Norsk Hydro ASA  vs.  DENSO P ADR

Norsk Hydro ASA

Risk-Adjusted Performance

0 of 100

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.

DENSO P ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DENSO P ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, DENSO P 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 DENSO P

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

The idea behind Norsk Hydro ASA and DENSO P ADR 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..