Correlation Between Norsk Hydro and Li Ning
Can any of the company-specific risk be diversified away by investing in both Norsk Hydro and Li Ning 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 Li Ning 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 Li Ning Company, you can compare the effects of market volatilities on Norsk Hydro and Li Ning 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 Li Ning. Check out your portfolio center. Please also check ongoing floating volatility patterns of Norsk Hydro and Li Ning.
Diversification Opportunities for Norsk Hydro and Li Ning
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Norsk and LNLB is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and Li Ning Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Li Ning Company 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 Li Ning. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Li Ning Company has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and Li Ning go up and down completely randomly.
Pair Corralation between Norsk Hydro and Li Ning
Assuming the 90 days trading horizon Norsk Hydro is expected to generate 17.2 times less return on investment than Li Ning. But when comparing it to its historical volatility, Norsk Hydro ASA is 1.97 times less risky than Li Ning. It trades about 0.01 of its potential returns per unit of risk. Li Ning Company is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 165.00 in Li Ning Company on September 2, 2024 and sell it today you would earn a total of 27.00 from holding Li Ning Company or generate 16.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Norsk Hydro ASA vs. Li Ning Company
Performance |
| Timeline |
| Norsk Hydro ASA |
| Li Ning Company |
Norsk Hydro and Li Ning Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Norsk Hydro and Li Ning
The main advantage of trading using opposite Norsk Hydro and Li Ning positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Norsk Hydro position performs unexpectedly, Li Ning 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 Li Ning will offset losses from the drop in Li Ning's long position.| Norsk Hydro vs. TOREX SEMICONDUCTOR LTD | Norsk Hydro vs. Taiwan Semiconductor Manufacturing | Norsk Hydro vs. United Natural Foods | Norsk Hydro vs. Tyson Foods |
| Li Ning vs. Global Ship Lease | Li Ning vs. Perseus Mining Limited | Li Ning vs. Playtech plc | Li Ning vs. Uber Technologies |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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