Correlation Between Norwegian Air and RYANAIR HLDGS

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

Diversification Opportunities for Norwegian Air and RYANAIR HLDGS

0.24

Correlation Coefficient

Norwegian Air  RYANAIR HLDGS

Modest diversification

The 3 months correlation between Norwegian and RYANAIR is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Norwegian Air Shuttle and RYANAIR HLDGS ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RYANAIR HLDGS ADR 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 RYANAIR HLDGS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RYANAIR HLDGS ADR has no effect on the direction of Norwegian Air i.e., Norwegian Air and RYANAIR HLDGS go up and down completely randomly.

Pair Corralation between Norwegian Air and RYANAIR HLDGS

Assuming the 90 days horizon Norwegian Air Shuttle is expected to generate 1.54 times more return on investment than RYANAIR HLDGS. However, Norwegian Air is 1.54 times more volatile than RYANAIR HLDGS ADR. It trades about -0.16 of its potential returns per unit of risk. RYANAIR HLDGS ADR is currently generating about -0.3 per unit of risk. If you would invest  99.00  in Norwegian Air Shuttle on October 8, 2024 and sell it today you would lose (5.00) from holding Norwegian Air Shuttle or give up 5.05% of portfolio value over 90 days.

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

Norwegian Air Shuttle  vs.  RYANAIR HLDGS ADR

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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

RYANAIR HLDGS ADR

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in RYANAIR HLDGS ADR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, RYANAIR HLDGS may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Norwegian Air and RYANAIR HLDGS

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

The idea behind Norwegian Air Shuttle and RYANAIR HLDGS ADR 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.