Correlation Between Norsk Hydro and Home Depot
Can any of the company-specific risk be diversified away by investing in both Norsk Hydro and Home Depot 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 Home Depot 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 The Home Depot, you can compare the effects of market volatilities on Norsk Hydro and Home Depot 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 Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Norsk Hydro and Home Depot.
Diversification Opportunities for Norsk Hydro and Home Depot
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Norsk and Home is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and The Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot 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 Home Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Depot has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and Home Depot go up and down completely randomly.
Pair Corralation between Norsk Hydro and Home Depot
Assuming the 90 days trading horizon Norsk Hydro is expected to generate 12.51 times less return on investment than Home Depot. In addition to that, Norsk Hydro is 2.01 times more volatile than The Home Depot. It trades about 0.01 of its total potential returns per unit of risk. The Home Depot is currently generating about 0.18 per unit of volatility. If you would invest 30,326 in The Home Depot on August 29, 2024 and sell it today you would earn a total of 10,194 from holding The Home Depot or generate 33.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Norsk Hydro ASA vs. The Home Depot
Performance |
| Timeline |
| Norsk Hydro ASA |
| Home Depot |
Norsk Hydro and Home Depot Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Norsk Hydro and Home Depot
The main advantage of trading using opposite Norsk Hydro and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Norsk Hydro position performs unexpectedly, Home Depot 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 Home Depot will offset losses from the drop in Home Depot's long position.The idea behind Norsk Hydro ASA and The Home Depot 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.| Home Depot vs. Superior Plus Corp | Home Depot vs. NMI Holdings | Home Depot vs. Origin Agritech | Home Depot vs. SIVERS SEMICONDUCTORS AB |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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