Correlation Between Dow Jones and Norfolk Southern
Can any of the company-specific risk be diversified away by investing in both Dow Jones 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 Dow Jones and Norfolk Southern into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and Norfolk Southern, you can compare the effects of market volatilities on Dow Jones 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 Dow Jones with a short position of Norfolk Southern. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Norfolk Southern.
Diversification Opportunities for Dow Jones and Norfolk Southern
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dow and Norfolk is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Norfolk Southern in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norfolk Southern and Dow Jones 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 Dow Jones Industrial 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 Dow Jones i.e., Dow Jones and Norfolk Southern go up and down completely randomly.
Pair Corralation between Dow Jones and Norfolk Southern
Assuming the 90 days trading horizon Dow Jones Industrial is expected to under-perform the Norfolk Southern. But the index apears to be less risky and, when comparing its historical volatility, Dow Jones Industrial is 2.75 times less risky than Norfolk Southern. The index trades about -0.05 of its potential returns per unit of risk. The Norfolk Southern is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 22,667 in Norfolk Southern on October 14, 2024 and sell it today you would earn a total of 133.00 from holding Norfolk Southern or generate 0.59% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 96.83% |
Values | Daily Returns |
Dow Jones Industrial vs. Norfolk Southern
Performance |
Timeline |
Dow Jones and Norfolk Southern Volatility Contrast
Predicted Return Density |
Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Norfolk Southern
Pair trading matchups for Norfolk Southern
Pair Trading with Dow Jones and Norfolk Southern
The main advantage of trading using opposite Dow Jones and Norfolk Southern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones 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.Dow Jones vs. Chipotle Mexican Grill | ||
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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 the Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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