Correlation Between Norsk Hydro and Compagnie

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

Diversification Opportunities for Norsk Hydro and Compagnie

0.07

Correlation Coefficient

Norsk Hydro  Compagnie

Significant diversification

The 3 months correlation between Norsk and Compagnie is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and Compagnie de Saint Gobain in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compagnie de Saint 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 Compagnie. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compagnie de Saint has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and Compagnie go up and down completely randomly.

Pair Corralation between Norsk Hydro and Compagnie

Assuming the 90 days trading horizon Norsk Hydro ASA is expected to under-perform the Compagnie. But the stock apears to be less risky and, when comparing its historical volatility, Norsk Hydro ASA is 1.09 times less risky than Compagnie. The stock trades about -0.55 of its potential returns per unit of risk. The Compagnie de Saint Gobain is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  8,578  in Compagnie de Saint Gobain on October 4, 2024 and sell it today you would earn a total of  22.00  from holding Compagnie de Saint Gobain or generate 0.26% return on investment over 90 days.

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

Norsk Hydro ASA  vs.  Compagnie de Saint Gobain

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.

Compagnie de Saint

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Compagnie de Saint Gobain are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Compagnie is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Norsk Hydro and Compagnie

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

The idea behind Norsk Hydro ASA and Compagnie de Saint Gobain 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.

Check out your portfolio center.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.