Correlation Between Norsk Hydro and Norwegian Air

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

Diversification Opportunities for Norsk Hydro and Norwegian Air

0.07

Correlation Coefficient

Norsk Hydro  Norwegian Air

Significant diversification

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

Pair Corralation between Norsk Hydro and Norwegian Air

Assuming the 90 days trading horizon Norsk Hydro ASA is expected to generate 0.84 times more return on investment than Norwegian Air. However, Norsk Hydro ASA is 1.18 times less risky than Norwegian Air. It trades about 0.12 of its potential returns per unit of risk. Norwegian Air Shuttle is currently generating about 0.05 per unit of risk. If you would invest  480.00  in Norsk Hydro ASA on September 12, 2024 and sell it today you would earn a total of  108.00  from holding Norsk Hydro ASA or generate 22.5% 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.  Norwegian Air Shuttle

Norsk Hydro ASA

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Norsk Hydro ASA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, Norsk Hydro reported solid returns over the last few months and may actually be approaching a breakup point.

Norwegian Air Shuttle

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Norwegian Air Shuttle are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Norwegian Air may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Norsk Hydro and Norwegian Air

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

The idea behind Norsk Hydro ASA and Norwegian Air Shuttle 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.