Correlation Between Nordic Semiconductor and Cars

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

By analyzing existing cross correlation between Nordic Semiconductor ASA and Cars Inc, you can compare the effects of market volatilities on Nordic Semiconductor and Cars 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 Nordic Semiconductor with a short position of Cars. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nordic Semiconductor and Cars.

Diversification Opportunities for Nordic Semiconductor and Cars

0.23

Correlation Coefficient

Nordic Semiconductor  Cars

Modest diversification

The 3 months correlation between Nordic and Cars is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Nordic Semiconductor ASA and Cars Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cars Inc and Nordic Semiconductor 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 Nordic Semiconductor ASA are associated (or correlated) with Cars. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cars Inc has no effect on the direction of Nordic Semiconductor i.e., Nordic Semiconductor and Cars go up and down completely randomly.

Pair Corralation between Nordic Semiconductor and Cars

Assuming the 90 days trading horizon Nordic Semiconductor ASA is expected to generate 1.26 times more return on investment than Cars. However, Nordic Semiconductor is 1.26 times more volatile than Cars Inc. It trades about 0.02 of its potential returns per unit of risk. Cars Inc is currently generating about 0.01 per unit of risk. If you would invest  10,366  in Nordic Semiconductor ASA on September 14, 2024 and sell it today you would lose (38.00) from holding Nordic Semiconductor ASA or give up 0.37% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	57.2%
Values	Daily Returns

Nordic Semiconductor ASA  vs.  Cars Inc

Nordic Semiconductor ASA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nordic Semiconductor ASA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Cars Inc

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cars Inc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Cars may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Nordic Semiconductor and Cars

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

The idea behind Nordic Semiconductor ASA and Cars Inc 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.