Correlation Between Norsk Hydro and Larsen Toubro
Can any of the company-specific risk be diversified away by investing in both Norsk Hydro and Larsen Toubro 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 Larsen Toubro 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 Larsen Toubro Limited, you can compare the effects of market volatilities on Norsk Hydro and Larsen Toubro 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 Larsen Toubro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Norsk Hydro and Larsen Toubro.
Diversification Opportunities for Norsk Hydro and Larsen Toubro
-0.16 | Correlation Coefficient |
Good diversification
The 3 months correlation between Norsk and Larsen is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and Larsen Toubro Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Larsen Toubro Limited 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 Larsen Toubro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Larsen Toubro Limited has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and Larsen Toubro go up and down completely randomly.
Pair Corralation between Norsk Hydro and Larsen Toubro
Assuming the 90 days trading horizon Norsk Hydro ASA is expected to generate 0.68 times more return on investment than Larsen Toubro. However, Norsk Hydro ASA is 1.48 times less risky than Larsen Toubro. It trades about 0.35 of its potential returns per unit of risk. Larsen Toubro Limited is currently generating about -0.04 per unit of risk. If you would invest 529.00 in Norsk Hydro ASA on October 21, 2024 and sell it today you would earn a total of 59.00 from holding Norsk Hydro ASA or generate 11.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Norsk Hydro ASA vs. Larsen Toubro Limited
Performance |
| Timeline |
| Norsk Hydro ASA |
| Larsen Toubro Limited |
Norsk Hydro and Larsen Toubro Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Norsk Hydro and Larsen Toubro
The main advantage of trading using opposite Norsk Hydro and Larsen Toubro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Norsk Hydro position performs unexpectedly, Larsen Toubro 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 Larsen Toubro will offset losses from the drop in Larsen Toubro's long position.| Norsk Hydro vs. China BlueChemical | Norsk Hydro vs. TOMBADOR IRON LTD | Norsk Hydro vs. Mitsui Chemicals | Norsk Hydro vs. Olympic Steel |
| Larsen Toubro vs. Vinci S A | Larsen Toubro vs. Johnson Controls International | Larsen Toubro vs. China Railway Group | Larsen Toubro vs. China Communications Construction |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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