Correlation Between Century Aluminum and Norsk Hydro

Can any of the company-specific risk be diversified away by investing in both Century Aluminum 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 Century Aluminum and Norsk Hydro into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Century Aluminum and Norsk Hydro ASA, you can compare the effects of market volatilities on Century Aluminum 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 Century Aluminum with a short position of Norsk Hydro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Century Aluminum and Norsk Hydro.

Diversification Opportunities for Century Aluminum and Norsk Hydro

0.88

Correlation Coefficient

Century Aluminum  Norsk Hydro

Very poor diversification

The 3 months correlation between Century and Norsk is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Century Aluminum 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 Century Aluminum 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 Century Aluminum 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 Century Aluminum i.e., Century Aluminum and Norsk Hydro go up and down completely randomly.

Pair Corralation between Century Aluminum and Norsk Hydro

Given the investment horizon of 90 days Century Aluminum is expected to generate 1.56 times more return on investment than Norsk Hydro. However, Century Aluminum is 1.56 times more volatile than Norsk Hydro ASA. It trades about 0.03 of its potential returns per unit of risk. Norsk Hydro ASA is currently generating about 0.01 per unit of risk. If you would invest  1,326  in Century Aluminum on February 4, 2024 and sell it today you would earn a total of  355.00  from holding Century Aluminum or generate 26.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.8%
Values	Daily Returns

Century Aluminum  vs.  Norsk Hydro ASA

Century Aluminum

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Century Aluminum are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Century Aluminum showed solid returns over the last few months and may actually be approaching a breakup point.

Norsk Hydro ASA

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Norsk Hydro ASA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady forward-looking signals, Norsk Hydro reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Century Aluminum and Norsk Hydro

The main advantage of trading using opposite Century Aluminum and Norsk Hydro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Century Aluminum 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 Century Aluminum 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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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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.