Correlation Between Ribbon Communications and Norsk Hydro
Can any of the company-specific risk be diversified away by investing in both Ribbon Communications and Norsk Hydro 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 Ribbon Communications and Norsk Hydro into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ribbon Communications and Norsk Hydro ASA, you can compare the effects of market volatilities on Ribbon Communications and Norsk Hydro 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 Ribbon Communications with a short position of Norsk Hydro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ribbon Communications and Norsk Hydro.
Diversification Opportunities for Ribbon Communications and Norsk Hydro
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Ribbon and Norsk is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Ribbon Communications and Norsk Hydro ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norsk Hydro ASA and Ribbon Communications 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 Ribbon Communications are associated (or correlated) with Norsk Hydro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Norsk Hydro ASA has no effect on the direction of Ribbon Communications i.e., Ribbon Communications and Norsk Hydro go up and down completely randomly.
Pair Corralation between Ribbon Communications and Norsk Hydro
Assuming the 90 days trading horizon Ribbon Communications is expected to generate 0.88 times more return on investment than Norsk Hydro. However, Ribbon Communications is 1.14 times less risky than Norsk Hydro. It trades about 0.17 of its potential returns per unit of risk. Norsk Hydro ASA is currently generating about 0.04 per unit of risk. If you would invest 334.00 in Ribbon Communications on September 5, 2024 and sell it today you would earn a total of 34.00 from holding Ribbon Communications or generate 10.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Ribbon Communications vs. Norsk Hydro ASA
Performance |
| Timeline |
| Ribbon Communications |
| Norsk Hydro ASA |
Ribbon Communications and Norsk Hydro Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ribbon Communications and Norsk Hydro
The main advantage of trading using opposite Ribbon Communications and Norsk Hydro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ribbon Communications position performs unexpectedly, Norsk Hydro 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 Norsk Hydro will offset losses from the drop in Norsk Hydro's long position.The idea behind Ribbon Communications and Norsk Hydro ASA 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.
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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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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