Correlation Between Visa and Norsk Hydro

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Can any of the company-specific risk be diversified away by investing in both Visa and Norsk Hydro 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 Visa and Norsk Hydro into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Visa Inc and Norsk Hydro ASA, you can compare the effects of market volatilities on Visa and Norsk Hydro 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 Visa with a short position of Norsk Hydro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and Norsk Hydro.

Diversification Opportunities for Visa and Norsk Hydro

-0.26
  Correlation Coefficient

Very good diversification

The 3 months correlation between Visa and Norsk is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Visa Inc and Norsk Hydro ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norsk Hydro ASA and Visa 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 Visa Inc are associated (or correlated) with Norsk Hydro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Norsk Hydro ASA has no effect on the direction of Visa i.e., Visa and Norsk Hydro go up and down completely randomly.

Pair Corralation between Visa and Norsk Hydro

Assuming the 90 days trading horizon Visa Inc is expected to generate 0.51 times more return on investment than Norsk Hydro. However, Visa Inc is 1.95 times less risky than Norsk Hydro. It trades about 0.04 of its potential returns per unit of risk. Norsk Hydro ASA is currently generating about -0.27 per unit of risk. If you would invest  29,965  in Visa Inc on October 12, 2024 and sell it today you would earn a total of  135.00  from holding Visa Inc or generate 0.45% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy94.44%
ValuesDaily Returns

Visa Inc  vs.  Norsk Hydro ASA

 Performance 
       Timeline  
Visa Inc 

Risk-Adjusted Performance

20 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Visa Inc are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Visa exhibited solid returns over the last few months and may actually be approaching a breakup point.
Norsk Hydro ASA 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Norsk Hydro ASA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's technical indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Visa and Norsk Hydro Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Visa and Norsk Hydro

The main advantage of trading using opposite Visa and Norsk Hydro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa position performs unexpectedly, Norsk Hydro 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 Norsk Hydro will offset losses from the drop in Norsk Hydro's long position.
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The idea behind Visa Inc and Norsk Hydro ASA 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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