Correlation Between Bank of America and NORFOLK

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

By analyzing existing cross correlation between Bank of America and NORFOLK SOUTHN P, you can compare the effects of market volatilities on Bank of America and NORFOLK 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 Bank of America with a short position of NORFOLK. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and NORFOLK.

Diversification Opportunities for Bank of America and NORFOLK

-0.57

Correlation Coefficient

Bank of America  NORFOLK

Excellent diversification

The 3 months correlation between Bank and NORFOLK is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and NORFOLK SOUTHN P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NORFOLK SOUTHN P and Bank of America 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 Bank of America are associated (or correlated) with NORFOLK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NORFOLK SOUTHN P has no effect on the direction of Bank of America i.e., Bank of America and NORFOLK go up and down completely randomly.

Pair Corralation between Bank of America and NORFOLK

Considering the 90-day investment horizon Bank of America is expected to generate 131.37 times less return on investment than NORFOLK. But when comparing it to its historical volatility, Bank of America is 72.03 times less risky than NORFOLK. It trades about 0.06 of its potential returns per unit of risk. NORFOLK SOUTHN P is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  9,052  in NORFOLK SOUTHN P on October 11, 2024 and sell it today you would lose (1,107) from holding NORFOLK SOUTHN P or give up 12.23% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	48.08%
Values	Daily Returns

Bank of America  vs.  NORFOLK SOUTHN P

Bank of America

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Bank of America may actually be approaching a critical reversion point that can send shares even higher in February 2025.

NORFOLK SOUTHN P

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NORFOLK SOUTHN P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for NORFOLK SOUTHN P investors.

Pair Trading with Bank of America and NORFOLK

The main advantage of trading using opposite Bank of America and NORFOLK positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, NORFOLK 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 NORFOLK will offset losses from the drop in NORFOLK's long position.

The idea behind Bank of America and NORFOLK SOUTHN P 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.