Correlation Between Norsk Hydro and PepsiCo

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

Diversification Opportunities for Norsk Hydro and PepsiCo

0.38

Correlation Coefficient

Norsk Hydro  PepsiCo

Weak diversification

The 3 months correlation between Norsk and PepsiCo is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and PepsiCo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PepsiCo 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 PepsiCo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PepsiCo has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and PepsiCo go up and down completely randomly.

Pair Corralation between Norsk Hydro and PepsiCo

Assuming the 90 days trading horizon Norsk Hydro ASA is expected to generate 3.53 times more return on investment than PepsiCo. However, Norsk Hydro is 3.53 times more volatile than PepsiCo. It trades about 0.03 of its potential returns per unit of risk. PepsiCo is currently generating about 0.0 per unit of risk. If you would invest  422.00  in Norsk Hydro ASA on October 5, 2024 and sell it today you would earn a total of  106.00  from holding Norsk Hydro ASA or generate 25.12% return on investment over 90 days.

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

Norsk Hydro ASA  vs.  PepsiCo

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.

PepsiCo

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PepsiCo has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, PepsiCo is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Norsk Hydro and PepsiCo

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

The idea behind Norsk Hydro ASA and PepsiCo 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.