Correlation Between Norwegian Air and Yokohama Rubber

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

By analyzing existing cross correlation between Norwegian Air Shuttle and The Yokohama Rubber, you can compare the effects of market volatilities on Norwegian Air and Yokohama Rubber 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 Norwegian Air with a short position of Yokohama Rubber. Check out your portfolio center. Please also check ongoing floating volatility patterns of Norwegian Air and Yokohama Rubber.

Diversification Opportunities for Norwegian Air and Yokohama Rubber

0.67

Correlation Coefficient

Norwegian Air  Yokohama Rubber

Poor diversification

The 3 months correlation between Norwegian and Yokohama is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Norwegian Air Shuttle and The Yokohama Rubber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yokohama Rubber and Norwegian Air 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 Norwegian Air Shuttle are associated (or correlated) with Yokohama Rubber. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yokohama Rubber has no effect on the direction of Norwegian Air i.e., Norwegian Air and Yokohama Rubber go up and down completely randomly.

Pair Corralation between Norwegian Air and Yokohama Rubber

Assuming the 90 days horizon Norwegian Air Shuttle is expected to under-perform the Yokohama Rubber. In addition to that, Norwegian Air is 2.05 times more volatile than The Yokohama Rubber. It trades about -0.03 of its total potential returns per unit of risk. The Yokohama Rubber is currently generating about 0.16 per unit of volatility. If you would invest  1,900  in The Yokohama Rubber on September 27, 2024 and sell it today you would earn a total of  80.00  from holding The Yokohama Rubber or generate 4.21% return on investment over 90 days.

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

Norwegian Air Shuttle  vs.  The Yokohama Rubber

Norwegian Air Shuttle

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Norwegian Air Shuttle has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Yokohama Rubber

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Yokohama Rubber has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, Yokohama Rubber is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Norwegian Air and Yokohama Rubber

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

The idea behind Norwegian Air Shuttle and The Yokohama Rubber 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.