Correlation Between Norsk Hydro and Ebro Foods

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

Diversification Opportunities for Norsk Hydro and Ebro Foods

NorskEbroDiversified AwayNorskEbroDiversified Away100%
0.15
  Correlation Coefficient

Average diversification

The 3 months correlation between Norsk and Ebro is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and Ebro Foods SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ebro Foods SA 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 Ebro Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ebro Foods SA has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and Ebro Foods go up and down completely randomly.

Pair Corralation between Norsk Hydro and Ebro Foods

Assuming the 90 days trading horizon Norsk Hydro ASA is expected to under-perform the Ebro Foods. In addition to that, Norsk Hydro is 2.36 times more volatile than Ebro Foods SA. It trades about -0.57 of its total potential returns per unit of risk. Ebro Foods SA is currently generating about -0.05 per unit of volatility. If you would invest  1,588  in Ebro Foods SA on September 28, 2024 and sell it today you would lose (8.00) from holding Ebro Foods SA or give up 0.5% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Norsk Hydro ASA  vs.  Ebro Foods SA

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec 051015
JavaScript chart by amCharts 3.21.15NOH1 AZU
       Timeline  
Norsk Hydro ASA 

Risk-Adjusted Performance

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Weak
 
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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 fragile 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.
JavaScript chart by amCharts 3.21.15NovDecDec5.25.45.65.866.2
Ebro Foods SA 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Ebro Foods SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Ebro Foods is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec15.615.715.815.91616.116.216.316.4

Norsk Hydro and Ebro Foods Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-8.48-6.35-4.22-2.090.02.074.216.358.4910.63 0.10.20.30.40.5
JavaScript chart by amCharts 3.21.15NOH1 AZU
       Returns  

Pair Trading with Norsk Hydro and Ebro Foods

The main advantage of trading using opposite Norsk Hydro and Ebro Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Norsk Hydro position performs unexpectedly, Ebro Foods 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 Ebro Foods will offset losses from the drop in Ebro Foods' long position.
The idea behind Norsk Hydro ASA and Ebro Foods SA 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.

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