Correlation Between Norsk Hydro and Ceres Power

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

Diversification Opportunities for Norsk Hydro and Ceres Power

-0.04
  Correlation Coefficient

Good diversification

The 3 months correlation between Norsk and Ceres is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and Ceres Power Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ceres Power Holdings 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 Ceres Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ceres Power Holdings has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and Ceres Power go up and down completely randomly.

Pair Corralation between Norsk Hydro and Ceres Power

Assuming the 90 days trading horizon Norsk Hydro is expected to generate 2.67 times less return on investment than Ceres Power. But when comparing it to its historical volatility, Norsk Hydro ASA is 2.09 times less risky than Ceres Power. It trades about 0.02 of its potential returns per unit of risk. Ceres Power Holdings is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  200.00  in Ceres Power Holdings on September 15, 2024 and sell it today you would lose (5.00) from holding Ceres Power Holdings or give up 2.5% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Norsk Hydro ASA  vs.  Ceres Power Holdings

 Performance 
       Timeline  
Norsk Hydro ASA 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Norsk Hydro ASA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, Norsk Hydro may actually be approaching a critical reversion point that can send shares even higher in January 2025.
Ceres Power Holdings 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Ceres Power Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking indicators, Ceres Power is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Norsk Hydro and Ceres Power Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Norsk Hydro and Ceres Power

The main advantage of trading using opposite Norsk Hydro and Ceres Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Norsk Hydro position performs unexpectedly, Ceres Power 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 Ceres Power will offset losses from the drop in Ceres Power's long position.
The idea behind Norsk Hydro ASA and Ceres Power Holdings 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.
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.

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