Correlation Between Norsk Hydro and Sony

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

Diversification Opportunities for Norsk Hydro and Sony

0.23

Correlation Coefficient

Norsk Hydro  Sony

Modest diversification

The 3 months correlation between Norsk and Sony is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and Sony Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sony Group 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 Sony. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sony Group has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and Sony go up and down completely randomly.

Pair Corralation between Norsk Hydro and Sony

Assuming the 90 days trading horizon Norsk Hydro ASA is expected to generate 1.74 times more return on investment than Sony. However, Norsk Hydro is 1.74 times more volatile than Sony Group. It trades about 0.03 of its potential returns per unit of risk. Sony Group is currently generating about 0.05 per unit of risk. If you would invest  406.00  in Norsk Hydro ASA on September 16, 2024 and sell it today you would earn a total of  157.00  from holding Norsk Hydro ASA or generate 38.67% 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.  Sony Group

Norsk Hydro ASA

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Norsk Hydro ASA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical indicators, Norsk Hydro may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Sony Group

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sony Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sony reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Norsk Hydro and Sony

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

The idea behind Norsk Hydro ASA and Sony Group 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.