Correlation Between SMA Solar and Norsk Hydro

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

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

Diversification Opportunities for SMA Solar and Norsk Hydro

-0.64

Correlation Coefficient

SMA Solar  Norsk Hydro

Excellent diversification

The 3 months correlation between SMA and Norsk is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding SMA Solar Technology 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 SMA Solar 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 SMA Solar Technology 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 SMA Solar i.e., SMA Solar and Norsk Hydro go up and down completely randomly.

Pair Corralation between SMA Solar and Norsk Hydro

Assuming the 90 days horizon SMA Solar Technology is expected to generate 1.52 times more return on investment than Norsk Hydro. However, SMA Solar is 1.52 times more volatile than Norsk Hydro ASA. It trades about 0.27 of its potential returns per unit of risk. Norsk Hydro ASA is currently generating about 0.06 per unit of risk. If you would invest  1,185  in SMA Solar Technology on September 15, 2024 and sell it today you would earn a total of  293.00  from holding SMA Solar Technology or generate 24.73% return on investment over 90 days.

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

SMA Solar Technology  vs.  Norsk Hydro ASA

SMA Solar Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SMA Solar Technology 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 January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Norsk Hydro ASA

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Norsk Hydro ASA are ranked lower than 4 (%) 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 January 2025.

Pair Trading with SMA Solar and Norsk Hydro

The main advantage of trading using opposite SMA Solar and Norsk Hydro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SMA Solar 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 SMA Solar Technology 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.