Correlation Between Norsk Hydro and Sumitomo

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

Diversification Opportunities for Norsk Hydro and Sumitomo

0.21

Correlation Coefficient

Norsk Hydro  Sumitomo

Modest diversification

The 3 months correlation between Norsk and Sumitomo is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and Sumitomo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo 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 Sumitomo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and Sumitomo go up and down completely randomly.

Pair Corralation between Norsk Hydro and Sumitomo

Assuming the 90 days trading horizon Norsk Hydro is expected to generate 2.55 times less return on investment than Sumitomo. But when comparing it to its historical volatility, Norsk Hydro ASA is 1.12 times less risky than Sumitomo. It trades about 0.04 of its potential returns per unit of risk. Sumitomo is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,013  in Sumitomo on December 30, 2024 and sell it today you would earn a total of  275.00  from holding Sumitomo or generate 13.66% 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.  Sumitomo

Norsk Hydro ASA

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Norsk Hydro ASA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical indicators, Norsk Hydro is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Sumitomo

Risk-Adjusted Performance

Modest

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

Pair Trading with Norsk Hydro and Sumitomo

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

The idea behind Norsk Hydro ASA and Sumitomo 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.