Correlation Between Norsk Hydro and EDP Renováveis
Can any of the company-specific risk be diversified away by investing in both Norsk Hydro and EDP Renováveis 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 EDP Renováveis 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 EDP Renovveis SA, you can compare the effects of market volatilities on Norsk Hydro and EDP Renováveis 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 EDP Renováveis. Check out your portfolio center. Please also check ongoing floating volatility patterns of Norsk Hydro and EDP Renováveis.
Diversification Opportunities for Norsk Hydro and EDP Renováveis
-0.6 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Norsk and EDP is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and EDP Renovveis SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EDP Renovveis 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 EDP Renováveis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EDP Renovveis SA has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and EDP Renováveis go up and down completely randomly.
Pair Corralation between Norsk Hydro and EDP Renováveis
Assuming the 90 days trading horizon Norsk Hydro ASA is expected to generate 1.74 times more return on investment than EDP Renováveis. However, Norsk Hydro is 1.74 times more volatile than EDP Renovveis SA. It trades about 0.03 of its potential returns per unit of risk. EDP Renovveis SA is currently generating about -0.05 per unit of risk. If you would invest 421.00 in Norsk Hydro ASA on September 3, 2024 and sell it today you would earn a total of 166.00 from holding Norsk Hydro ASA or generate 39.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Norsk Hydro ASA vs. EDP Renovveis SA
Performance |
| Timeline |
| Norsk Hydro ASA |
| EDP Renovveis SA |
Norsk Hydro and EDP Renováveis Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Norsk Hydro and EDP Renováveis
The main advantage of trading using opposite Norsk Hydro and EDP Renováveis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Norsk Hydro position performs unexpectedly, EDP Renováveis 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 EDP Renováveis will offset losses from the drop in EDP Renováveis' long position.| Norsk Hydro vs. Apollo Medical Holdings | Norsk Hydro vs. Summit Hotel Properties | Norsk Hydro vs. Park Hotels Resorts | Norsk Hydro vs. MEDICAL FACILITIES NEW |
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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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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