Correlation Between Norwegian Air and Johnson Matthey

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

Diversification Opportunities for Norwegian Air and Johnson Matthey

0.13
  Correlation Coefficient

Average diversification

The 3 months correlation between Norwegian and Johnson is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Norwegian Air Shuttle and Johnson Matthey PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Matthey PLC 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 Johnson Matthey. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Matthey PLC has no effect on the direction of Norwegian Air i.e., Norwegian Air and Johnson Matthey go up and down completely randomly.

Pair Corralation between Norwegian Air and Johnson Matthey

Assuming the 90 days horizon Norwegian Air Shuttle is expected to generate 1.6 times more return on investment than Johnson Matthey. However, Norwegian Air is 1.6 times more volatile than Johnson Matthey PLC. It trades about 0.02 of its potential returns per unit of risk. Johnson Matthey PLC is currently generating about -0.03 per unit of risk. If you would invest  87.00  in Norwegian Air Shuttle on October 22, 2024 and sell it today you would earn a total of  0.00  from holding Norwegian Air Shuttle or generate 0.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Norwegian Air Shuttle  vs.  Johnson Matthey PLC

 Performance 
       Timeline  
Norwegian Air Shuttle 

Risk-Adjusted Performance

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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 latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.
Johnson Matthey PLC 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Johnson Matthey PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Norwegian Air and Johnson Matthey Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Norwegian Air and Johnson Matthey

The main advantage of trading using opposite Norwegian Air and Johnson Matthey positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Norwegian Air position performs unexpectedly, Johnson Matthey 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 Johnson Matthey will offset losses from the drop in Johnson Matthey's long position.
The idea behind Norwegian Air Shuttle and Johnson Matthey PLC 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.

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