Correlation Between Canadian National and Norfolk Southern

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

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

Diversification Opportunities for Canadian National and Norfolk Southern

-0.43

Correlation Coefficient

Canadian National  Norfolk Southern

Very good diversification

The 3 months correlation between Canadian and Norfolk is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Canadian National Railway and Norfolk Southern in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norfolk Southern and Canadian National 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 Canadian National Railway 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 Canadian National i.e., Canadian National and Norfolk Southern go up and down completely randomly.

Pair Corralation between Canadian National and Norfolk Southern

Considering the 90-day investment horizon Canadian National Railway is expected to under-perform the Norfolk Southern. But the stock apears to be less risky and, when comparing its historical volatility, Canadian National Railway is 1.68 times less risky than Norfolk Southern. The stock trades about -0.07 of its potential returns per unit of risk. The Norfolk Southern is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  25,478  in Norfolk Southern on August 30, 2024 and sell it today you would earn a total of  2,060  from holding Norfolk Southern or generate 8.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Canadian National Railway  vs.  Norfolk Southern

Canadian National Railway

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canadian National Railway has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Canadian National is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Norfolk Southern

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Norfolk Southern are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Norfolk Southern may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Canadian National and Norfolk Southern

The main advantage of trading using opposite Canadian National and Norfolk Southern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Canadian National 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 Canadian National Railway 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.