Correlation Between Norsk Hydro and WATSCO INC
Can any of the company-specific risk be diversified away by investing in both Norsk Hydro and WATSCO INC 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 WATSCO INC 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 WATSCO INC B, you can compare the effects of market volatilities on Norsk Hydro and WATSCO INC 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 WATSCO INC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Norsk Hydro and WATSCO INC.
Diversification Opportunities for Norsk Hydro and WATSCO INC
0.43 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Norsk and WATSCO is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Norsk Hydro ASA and WATSCO INC B in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WATSCO INC B 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 WATSCO INC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WATSCO INC B has no effect on the direction of Norsk Hydro i.e., Norsk Hydro and WATSCO INC go up and down completely randomly.
Pair Corralation between Norsk Hydro and WATSCO INC
Assuming the 90 days trading horizon Norsk Hydro is expected to generate 1.09 times less return on investment than WATSCO INC. In addition to that, Norsk Hydro is 1.56 times more volatile than WATSCO INC B. It trades about 0.03 of its total potential returns per unit of risk. WATSCO INC B is currently generating about 0.06 per unit of volatility. If you would invest 24,332 in WATSCO INC B on September 3, 2024 and sell it today you would earn a total of 17,068 from holding WATSCO INC B or generate 70.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
Norsk Hydro ASA vs. WATSCO INC B
Performance |
| Timeline |
| Norsk Hydro ASA |
| WATSCO INC B |
Norsk Hydro and WATSCO INC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Norsk Hydro and WATSCO INC
The main advantage of trading using opposite Norsk Hydro and WATSCO INC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Norsk Hydro position performs unexpectedly, WATSCO INC 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 WATSCO INC will offset losses from the drop in WATSCO INC's 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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