Correlation Between Citigroup and Norfolk Southern

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

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

Diversification Opportunities for Citigroup and Norfolk Southern

0.76

Correlation Coefficient

Citigroup  Norfolk Southern

Poor diversification

The 3 months correlation between Citigroup and Norfolk is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Norfolk Southern in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norfolk Southern and Citigroup 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 Citigroup are associated (or correlated) with Norfolk Southern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Norfolk Southern has no effect on the direction of Citigroup i.e., Citigroup and Norfolk Southern go up and down completely randomly.

Pair Corralation between Citigroup and Norfolk Southern

Taking into account the 90-day investment horizon Citigroup is expected to generate 0.93 times more return on investment than Norfolk Southern. However, Citigroup is 1.07 times less risky than Norfolk Southern. It trades about -0.03 of its potential returns per unit of risk. Norfolk Southern is currently generating about -0.44 per unit of risk. If you would invest  6,984  in Citigroup on September 23, 2024 and sell it today you would lose (65.00) from holding Citigroup or give up 0.93% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Citigroup  vs.  Norfolk Southern

Citigroup

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental indicators, Citigroup may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Norfolk Southern

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Norfolk Southern are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Norfolk Southern is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Citigroup and Norfolk Southern

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

The idea behind Citigroup and Norfolk Southern 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.