Correlation Between Norsk Hydro and Pryme BV

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

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

Diversification Opportunities for Norsk Hydro and Pryme BV

-0.57

Correlation Coefficient

Norsk Hydro  Pryme BV

Excellent diversification

The 3 months correlation between Norsk and Pryme is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and Pryme BV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pryme BV and Norsk Hydro 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 Norsk Hydro ASA are associated (or correlated) with Pryme BV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pryme BV has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and Pryme BV go up and down completely randomly.

Pair Corralation between Norsk Hydro and Pryme BV

Assuming the 90 days trading horizon Norsk Hydro ASA is expected to generate 0.22 times more return on investment than Pryme BV. However, Norsk Hydro ASA is 4.47 times less risky than Pryme BV. It trades about 0.15 of its potential returns per unit of risk. Pryme BV is currently generating about -0.15 per unit of risk. If you would invest  5,658  in Norsk Hydro ASA on September 5, 2024 and sell it today you would earn a total of  1,228  from holding Norsk Hydro ASA or generate 21.7% return on investment over 90 days.

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

Norsk Hydro ASA  vs.  Pryme BV

Norsk Hydro ASA

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Norsk Hydro ASA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Norsk Hydro disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pryme BV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pryme BV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Norsk Hydro and Pryme BV

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

The idea behind Norsk Hydro ASA and Pryme BV 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.