Correlation Between KCE EL and Norsk Hydro

Can any of the company-specific risk be diversified away by investing in both KCE EL and Norsk Hydro 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 KCE EL and Norsk Hydro into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between KCE EL PCL and Norsk Hydro ASA, you can compare the effects of market volatilities on KCE EL and Norsk Hydro 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 KCE EL with a short position of Norsk Hydro. Check out your portfolio center. Please also check ongoing floating volatility patterns of KCE EL and Norsk Hydro.

Diversification Opportunities for KCE EL and Norsk Hydro

-0.03

Correlation Coefficient

KCE EL  Norsk Hydro

Good diversification

The 3 months correlation between KCE and Norsk is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding KCE EL PCL and Norsk Hydro ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norsk Hydro ASA and KCE EL 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 KCE EL PCL are associated (or correlated) with Norsk Hydro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Norsk Hydro ASA has no effect on the direction of KCE EL i.e., KCE EL and Norsk Hydro go up and down completely randomly.

Pair Corralation between KCE EL and Norsk Hydro

Assuming the 90 days trading horizon KCE EL PCL is expected to under-perform the Norsk Hydro. But the stock apears to be less risky and, when comparing its historical volatility, KCE EL PCL is 1.56 times less risky than Norsk Hydro. The stock trades about -0.06 of its potential returns per unit of risk. The Norsk Hydro ASA is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  310.00  in Norsk Hydro ASA on October 4, 2024 and sell it today you would earn a total of  218.00  from holding Norsk Hydro ASA or generate 70.32% return on investment over 90 days.

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

KCE EL PCL  vs.  Norsk Hydro ASA

KCE EL PCL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KCE EL PCL has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 uncertain 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.

Pair Trading with KCE EL and Norsk Hydro

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

The idea behind KCE EL PCL and Norsk Hydro 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.

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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.