Correlation Between Aker BP and Norsk Hydro
Can any of the company-specific risk be diversified away by investing in both Aker BP 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 Aker BP and Norsk Hydro into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Aker BP ASA and Norsk Hydro ASA, you can compare the effects of market volatilities on Aker BP 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 Aker BP with a short position of Norsk Hydro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aker BP and Norsk Hydro.
Diversification Opportunities for Aker BP and Norsk Hydro
0.07 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Aker and Norsk is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Aker BP ASA 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 Aker BP 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 Aker BP ASA 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 Aker BP i.e., Aker BP and Norsk Hydro go up and down completely randomly.
Pair Corralation between Aker BP and Norsk Hydro
Assuming the 90 days trading horizon Aker BP ASA is expected to generate 0.88 times more return on investment than Norsk Hydro. However, Aker BP ASA is 1.14 times less risky than Norsk Hydro. It trades about 0.01 of its potential returns per unit of risk. Norsk Hydro ASA is currently generating about 0.0 per unit of risk. If you would invest 22,889 in Aker BP ASA on November 27, 2024 and sell it today you would earn a total of 641.00 from holding Aker BP ASA or generate 2.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Aker BP ASA vs. Norsk Hydro ASA
Performance |
| Timeline |
| Aker BP ASA |
| Norsk Hydro ASA |
Aker BP and Norsk Hydro Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Aker BP and Norsk Hydro
The main advantage of trading using opposite Aker BP and Norsk Hydro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aker BP 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.The idea behind Aker BP ASA 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.| Norsk Hydro vs. Yara International ASA | Norsk Hydro vs. Equinor ASA | Norsk Hydro vs. Telenor ASA | Norsk Hydro vs. Orkla ASA |
Check out your portfolio center.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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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