Correlation Between Splunk and NORSK HYDRO

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Can any of the company-specific risk be diversified away by investing in both Splunk 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 Splunk and NORSK HYDRO into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Splunk Inc and NORSK HYDRO ASA, you can compare the effects of market volatilities on Splunk 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 Splunk with a short position of NORSK HYDRO. Check out your portfolio center. Please also check ongoing floating volatility patterns of Splunk and NORSK HYDRO.

Diversification Opportunities for Splunk and NORSK HYDRO

0.47
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Splunk and NORSK is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Splunk Inc 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 Splunk 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 Splunk Inc 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 Splunk i.e., Splunk and NORSK HYDRO go up and down completely randomly.

Pair Corralation between Splunk and NORSK HYDRO

Given the investment horizon of 90 days Splunk Inc is expected to under-perform the NORSK HYDRO. But the stock apears to be less risky and, when comparing its historical volatility, Splunk Inc is 1.17 times less risky than NORSK HYDRO. The stock trades about -0.06 of its potential returns per unit of risk. The NORSK HYDRO ASA is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  654.00  in NORSK HYDRO ASA on August 29, 2022 and sell it today you would earn a total of  84.00  from holding NORSK HYDRO ASA or generate 12.84% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Splunk Inc  vs.  NORSK HYDRO ASA

 Performance (%) 
       Timeline  
Splunk Inc 
Splunk Performance
0 of 100
Over the last 90 days Splunk Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's essential indicators remain fairly strong which may send shares a bit higher in December 2022. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Splunk Price Channel

NORSK HYDRO ASA 
NORSK Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in NORSK HYDRO ASA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak forward-looking signals, NORSK HYDRO may actually be approaching a critical reversion point that can send shares even higher in December 2022.

NORSK Price Channel

Splunk and NORSK HYDRO Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Splunk and NORSK HYDRO

The main advantage of trading using opposite Splunk and NORSK HYDRO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Splunk 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.
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The idea behind Splunk Inc 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.

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