Correlation Between E3 LITHIUM and Norsk Hydro

Can any of the company-specific risk be diversified away by investing in both E3 LITHIUM 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 E3 LITHIUM and Norsk Hydro into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between E3 LITHIUM LTD and Norsk Hydro ASA, you can compare the effects of market volatilities on E3 LITHIUM 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 E3 LITHIUM with a short position of Norsk Hydro. Check out your portfolio center. Please also check ongoing floating volatility patterns of E3 LITHIUM and Norsk Hydro.

Diversification Opportunities for E3 LITHIUM and Norsk Hydro

-0.47

Correlation Coefficient

E3 LITHIUM  Norsk Hydro

Very good diversification

The 3 months correlation between OW3 and Norsk is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding E3 LITHIUM LTD 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 E3 LITHIUM 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 E3 LITHIUM LTD 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 E3 LITHIUM i.e., E3 LITHIUM and Norsk Hydro go up and down completely randomly.

Pair Corralation between E3 LITHIUM and Norsk Hydro

Assuming the 90 days horizon E3 LITHIUM LTD is expected to under-perform the Norsk Hydro. In addition to that, E3 LITHIUM is 1.77 times more volatile than Norsk Hydro ASA. It trades about -0.05 of its total potential returns per unit of risk. Norsk Hydro ASA is currently generating about 0.09 per unit of volatility. If you would invest  529.00  in Norsk Hydro ASA on December 20, 2024 and sell it today you would earn a total of  58.00  from holding Norsk Hydro ASA or generate 10.96% return on investment over 90 days.

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

E3 LITHIUM LTD  vs.  Norsk Hydro ASA

E3 LITHIUM LTD

Risk-Adjusted Performance

Very Weak

Over the last 90 days E3 LITHIUM LTD 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.

Norsk Hydro ASA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Norsk Hydro ASA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, Norsk Hydro may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with E3 LITHIUM and Norsk Hydro

The main advantage of trading using opposite E3 LITHIUM and Norsk Hydro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if E3 LITHIUM 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 E3 LITHIUM LTD 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.

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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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.