Correlation Between Norsk Hydro and Union Pacific

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

Diversification Opportunities for Norsk Hydro and Union Pacific

-0.17

Correlation Coefficient

Norsk Hydro  Union Pacific

Good diversification

The 3 months correlation between Norsk and Union is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and Union Pacific in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Union Pacific 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 Union Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Union Pacific has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and Union Pacific go up and down completely randomly.

Pair Corralation between Norsk Hydro and Union Pacific

Assuming the 90 days trading horizon Norsk Hydro ASA is expected to generate 1.88 times more return on investment than Union Pacific. However, Norsk Hydro is 1.88 times more volatile than Union Pacific. It trades about 0.09 of its potential returns per unit of risk. Union Pacific is currently generating about 0.02 per unit of risk. If you would invest  505.00  in Norsk Hydro ASA on September 2, 2024 and sell it today you would earn a total of  82.00  from holding Norsk Hydro ASA or generate 16.24% return on investment over 90 days.

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

Norsk Hydro ASA  vs.  Union Pacific

Norsk Hydro ASA

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Norsk Hydro ASA are ranked lower than 7 (%) 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.

Union Pacific

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Union Pacific are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Union Pacific is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Norsk Hydro and Union Pacific

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

The idea behind Norsk Hydro ASA and Union Pacific 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.