Correlation Between Norwegian Air and BG Foods

Can any of the company-specific risk be diversified away by investing in both Norwegian Air and BG Foods 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 Norwegian Air and BG Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Norwegian Air Shuttle and BG Foods, you can compare the effects of market volatilities on Norwegian Air and BG Foods 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 Norwegian Air with a short position of BG Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Norwegian Air and BG Foods.

Diversification Opportunities for Norwegian Air and BG Foods

0.01

Correlation Coefficient

Norwegian Air  BG Foods

Significant diversification

The 3 months correlation between Norwegian and DHR is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Norwegian Air Shuttle and BG Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BG Foods and Norwegian Air 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 Norwegian Air Shuttle are associated (or correlated) with BG Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BG Foods has no effect on the direction of Norwegian Air i.e., Norwegian Air and BG Foods go up and down completely randomly.

Pair Corralation between Norwegian Air and BG Foods

Assuming the 90 days horizon Norwegian Air Shuttle is expected to under-perform the BG Foods. But the stock apears to be less risky and, when comparing its historical volatility, Norwegian Air Shuttle is 1.72 times less risky than BG Foods. The stock trades about -0.15 of its potential returns per unit of risk. The BG Foods is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  636.00  in BG Foods on October 10, 2024 and sell it today you would earn a total of  31.00  from holding BG Foods or generate 4.87% return on investment over 90 days.

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

Norwegian Air Shuttle  vs.  BG Foods

Norwegian Air Shuttle

Risk-Adjusted Performance

0 of 100

Very Weak

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

BG Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BG Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, BG Foods is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Norwegian Air and BG Foods

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

The idea behind Norwegian Air Shuttle and BG Foods 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.