Correlation Between Norske Skog and Elkem ASA

Can any of the company-specific risk be diversified away by investing in both Norske Skog and Elkem ASA 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 Norske Skog and Elkem ASA into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Norske Skog Asa and Elkem ASA, you can compare the effects of market volatilities on Norske Skog and Elkem ASA 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 Norske Skog with a short position of Elkem ASA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Norske Skog and Elkem ASA.

Diversification Opportunities for Norske Skog and Elkem ASA

0.17

Correlation Coefficient

Norske Skog  Elkem ASA

Average diversification

The 3 months correlation between Norske and Elkem is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Norske Skog Asa and Elkem ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elkem ASA and Norske Skog 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 Norske Skog Asa are associated (or correlated) with Elkem ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elkem ASA has no effect on the direction of Norske Skog i.e., Norske Skog and Elkem ASA go up and down completely randomly.

Pair Corralation between Norske Skog and Elkem ASA

Assuming the 90 days trading horizon Norske Skog Asa is expected to under-perform the Elkem ASA. In addition to that, Norske Skog is 1.75 times more volatile than Elkem ASA. It trades about -0.21 of its total potential returns per unit of risk. Elkem ASA is currently generating about 0.01 per unit of volatility. If you would invest  1,830  in Elkem ASA on September 4, 2024 and sell it today you would earn a total of  7.00  from holding Elkem ASA or generate 0.38% return on investment over 90 days.

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

Norske Skog Asa  vs.  Elkem ASA

Norske Skog Asa

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Norske Skog Asa has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Elkem ASA

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Elkem ASA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, Elkem ASA is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Norske Skog and Elkem ASA

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

The idea behind Norske Skog Asa and Elkem ASA 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.