Correlation Between X FAB and Norsk Hydro

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

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

Diversification Opportunities for X FAB and Norsk Hydro

-0.09

Correlation Coefficient

X FAB  Norsk Hydro

Good diversification

The 3 months correlation between XFB and Norsk is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding X FAB Silicon Foundries 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 X FAB 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 X FAB Silicon Foundries 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 X FAB i.e., X FAB and Norsk Hydro go up and down completely randomly.

Pair Corralation between X FAB and Norsk Hydro

Assuming the 90 days trading horizon X FAB Silicon Foundries is expected to under-perform the Norsk Hydro. In addition to that, X FAB is 1.33 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 -0.03 per unit of volatility. If you would invest  594.00  in Norsk Hydro ASA on December 5, 2024 and sell it today you would lose (29.00) from holding Norsk Hydro ASA or give up 4.88% of portfolio value over 90 days.

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

X FAB Silicon Foundries  vs.  Norsk Hydro ASA

X FAB Silicon

Risk-Adjusted Performance

Very Weak

Over the last 90 days X FAB Silicon Foundries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental drivers remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Norsk Hydro ASA

Risk-Adjusted Performance

Very Weak

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

Pair Trading with X FAB and Norsk Hydro

The main advantage of trading using opposite X FAB and Norsk Hydro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if X FAB 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 X FAB Silicon Foundries 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.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.