Correlation Between Norsk Hydro and Arcosa

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

Diversification Opportunities for Norsk Hydro and Arcosa

0.09

Correlation Coefficient

Norsk Hydro  Arcosa

Significant diversification

The 3 months correlation between Norsk and Arcosa is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and Arcosa Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arcosa Inc 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 Arcosa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arcosa Inc has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and Arcosa go up and down completely randomly.

Pair Corralation between Norsk Hydro and Arcosa

Assuming the 90 days trading horizon Norsk Hydro ASA is expected to under-perform the Arcosa. But the stock apears to be less risky and, when comparing its historical volatility, Norsk Hydro ASA is 1.15 times less risky than Arcosa. The stock trades about -0.55 of its potential returns per unit of risk. The Arcosa Inc is currently generating about -0.43 of returns per unit of risk over similar time horizon. If you would invest  10,300  in Arcosa Inc on October 5, 2024 and sell it today you would lose (1,000.00) from holding Arcosa Inc or give up 9.71% of portfolio value over 90 days.

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

Norsk Hydro ASA  vs.  Arcosa Inc

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.

Arcosa Inc

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Arcosa Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Arcosa may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Norsk Hydro and Arcosa

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

The idea behind Norsk Hydro ASA and Arcosa Inc 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.