Correlation Between Norse Atlantic and AirAsia Group

Can any of the company-specific risk be diversified away by investing in both Norse Atlantic and AirAsia Group 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 Norse Atlantic and AirAsia Group into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Norse Atlantic ASA and AirAsia Group Berhad, you can compare the effects of market volatilities on Norse Atlantic and AirAsia Group 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 Norse Atlantic with a short position of AirAsia Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Norse Atlantic and AirAsia Group.

Diversification Opportunities for Norse Atlantic and AirAsia Group

0.09

Correlation Coefficient

Norse Atlantic  AirAsia Group

Significant diversification

The 3 months correlation between Norse and AirAsia is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Norse Atlantic ASA and AirAsia Group Berhad in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AirAsia Group Berhad and Norse Atlantic 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 Norse Atlantic ASA are associated (or correlated) with AirAsia Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AirAsia Group Berhad has no effect on the direction of Norse Atlantic i.e., Norse Atlantic and AirAsia Group go up and down completely randomly.

Pair Corralation between Norse Atlantic and AirAsia Group

Assuming the 90 days horizon Norse Atlantic is expected to generate 13.2 times less return on investment than AirAsia Group. But when comparing it to its historical volatility, Norse Atlantic ASA is 2.93 times less risky than AirAsia Group. It trades about 0.01 of its potential returns per unit of risk. AirAsia Group Berhad is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  20.00  in AirAsia Group Berhad on November 28, 2024 and sell it today you would lose (2.00) from holding AirAsia Group Berhad or give up 10.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	93.1%
Values	Daily Returns

Norse Atlantic ASA  vs.  AirAsia Group Berhad

Norse Atlantic ASA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Norse Atlantic ASA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Norse Atlantic is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

AirAsia Group Berhad

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AirAsia Group Berhad are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental drivers, AirAsia Group reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Norse Atlantic and AirAsia Group

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

The idea behind Norse Atlantic ASA and AirAsia Group Berhad 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..