Correlation Between Norsk Hydro and 3M
Can any of the company-specific risk be diversified away by investing in both Norsk Hydro and 3M 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 3M 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 3M Company, you can compare the effects of market volatilities on Norsk Hydro and 3M 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 3M. Check out your portfolio center. Please also check ongoing floating volatility patterns of Norsk Hydro and 3M.
Diversification Opportunities for Norsk Hydro and 3M
0.45 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Norsk and 3M is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and 3M Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3M 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 3M. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 3M Company has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and 3M go up and down completely randomly.
Pair Corralation between Norsk Hydro and 3M
Assuming the 90 days trading horizon Norsk Hydro ASA is expected to generate 2.32 times more return on investment than 3M. However, Norsk Hydro is 2.32 times more volatile than 3M Company. It trades about 0.07 of its potential returns per unit of risk. 3M Company is currently generating about 0.04 per unit of risk. If you would invest 552.00 in Norsk Hydro ASA on September 13, 2024 and sell it today you would earn a total of 20.00 from holding Norsk Hydro ASA or generate 3.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Norsk Hydro ASA vs. 3M Company
Performance |
| Timeline |
| Norsk Hydro ASA |
| 3M Company |
Norsk Hydro and 3M Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Norsk Hydro and 3M
The main advantage of trading using opposite Norsk Hydro and 3M positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Norsk Hydro position performs unexpectedly, 3M 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 3M will offset losses from the drop in 3M's long position.| Norsk Hydro vs. Goosehead Insurance | Norsk Hydro vs. RETAIL FOOD GROUP | Norsk Hydro vs. COSTCO WHOLESALE CDR | Norsk Hydro vs. SBI Insurance Group |
| 3M vs. Motorcar Parts of | 3M vs. Cogent Communications Holdings | 3M vs. Zoom Video Communications | 3M vs. Carsales |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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