Correlation Between Norsk Hydro and Gold Road

Can any of the company-specific risk be diversified away by investing in both Norsk Hydro and Gold Road 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 Gold Road 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 Gold Road Resources, you can compare the effects of market volatilities on Norsk Hydro and Gold Road 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 Gold Road. Check out your portfolio center. Please also check ongoing floating volatility patterns of Norsk Hydro and Gold Road.

Diversification Opportunities for Norsk Hydro and Gold Road

0.7

Correlation Coefficient

Norsk Hydro  Gold Road

Poor diversification

The 3 months correlation between Norsk and Gold is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and Gold Road Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Road Resources 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 Gold Road. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gold Road Resources has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and Gold Road go up and down completely randomly.

Pair Corralation between Norsk Hydro and Gold Road

Assuming the 90 days trading horizon Norsk Hydro is expected to generate 1.56 times less return on investment than Gold Road. In addition to that, Norsk Hydro is 1.2 times more volatile than Gold Road Resources. It trades about 0.12 of its total potential returns per unit of risk. Gold Road Resources is currently generating about 0.23 per unit of volatility. If you would invest  92.00  in Gold Road Resources on September 12, 2024 and sell it today you would earn a total of  37.00  from holding Gold Road Resources or generate 40.22% return on investment over 90 days.

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

Norsk Hydro ASA  vs.  Gold Road Resources

Norsk Hydro ASA

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Norsk Hydro ASA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, Norsk Hydro reported solid returns over the last few months and may actually be approaching a breakup point.

Gold Road Resources

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Gold Road Resources are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Gold Road reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Norsk Hydro and Gold Road

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

The idea behind Norsk Hydro ASA and Gold Road Resources 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.