Correlation Between Ford and NORFOLK

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

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

Diversification Opportunities for Ford and NORFOLK

0.27

Correlation Coefficient

Ford  NORFOLK

Modest diversification

The 3 months correlation between Ford and NORFOLK is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor 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 Ford 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 Ford Motor 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 Ford i.e., Ford and NORFOLK go up and down completely randomly.

Pair Corralation between Ford and NORFOLK

Taking into account the 90-day investment horizon Ford is expected to generate 1079.75 times less return on investment than NORFOLK. But when comparing it to its historical volatility, Ford Motor is 50.42 times less risky than NORFOLK. It trades about 0.0 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 Together
Strength	Very Weak
Accuracy	47.98%
Values	Daily Returns

Ford Motor  vs.  NORFOLK SOUTHN P

Ford Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ford Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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 Ford and NORFOLK

The main advantage of trading using opposite Ford and NORFOLK positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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 Ford Motor 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.