Correlation Between Norsk Hydro and Nemetschek

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

Diversification Opportunities for Norsk Hydro and Nemetschek

0.69

Correlation Coefficient

Norsk Hydro  Nemetschek

Poor diversification

The 3 months correlation between Norsk and Nemetschek is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and Nemetschek AG ON in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nemetschek AG ON 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 Nemetschek. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nemetschek AG ON has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and Nemetschek go up and down completely randomly.

Pair Corralation between Norsk Hydro and Nemetschek

Assuming the 90 days trading horizon Norsk Hydro ASA is expected to under-perform the Nemetschek. In addition to that, Norsk Hydro is 1.96 times more volatile than Nemetschek AG ON. It trades about -0.02 of its total potential returns per unit of risk. Nemetschek AG ON is currently generating about -0.02 per unit of volatility. If you would invest  10,050  in Nemetschek AG ON on September 13, 2024 and sell it today you would lose (165.00) from holding Nemetschek AG ON or give up 1.64% of portfolio value over 90 days.

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

Norsk Hydro ASA  vs.  Nemetschek AG ON

Norsk Hydro ASA

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Norsk Hydro ASA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical indicators, Norsk Hydro reported solid returns over the last few months and may actually be approaching a breakup point.

Nemetschek AG ON

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nemetschek AG ON are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain primary indicators, Nemetschek may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Norsk Hydro and Nemetschek

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

The idea behind Norsk Hydro ASA and Nemetschek AG ON 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.