Correlation Between HEALTHSTREAM (HL5SG) and Norfolk Southern

Can any of the company-specific risk be diversified away by investing in both HEALTHSTREAM (HL5SG) 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 HEALTHSTREAM (HL5SG) and Norfolk Southern into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between HEALTHSTREAM and Norfolk Southern, you can compare the effects of market volatilities on HEALTHSTREAM (HL5SG) 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 HEALTHSTREAM (HL5SG) with a short position of Norfolk Southern. Check out your portfolio center. Please also check ongoing floating volatility patterns of HEALTHSTREAM (HL5SG) and Norfolk Southern.

Diversification Opportunities for HEALTHSTREAM (HL5SG) and Norfolk Southern

0.86

Correlation Coefficient

HEALTHSTREAM (HL5SG)  Norfolk Southern

Very poor diversification

The 3 months correlation between HEALTHSTREAM and Norfolk is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding HEALTHSTREAM and Norfolk Southern in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norfolk Southern and HEALTHSTREAM (HL5SG) 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 HEALTHSTREAM 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 HEALTHSTREAM (HL5SG) i.e., HEALTHSTREAM (HL5SG) and Norfolk Southern go up and down completely randomly.

Pair Corralation between HEALTHSTREAM (HL5SG) and Norfolk Southern

Assuming the 90 days trading horizon HEALTHSTREAM is expected to under-perform the Norfolk Southern. But the stock apears to be less risky and, when comparing its historical volatility, HEALTHSTREAM is 1.13 times less risky than Norfolk Southern. The stock trades about -0.06 of its potential returns per unit of risk. The Norfolk Southern is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  22,480  in Norfolk Southern on December 25, 2024 and sell it today you would lose (1,080) from holding Norfolk Southern or give up 4.8% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

HEALTHSTREAM  vs.  Norfolk Southern

HEALTHSTREAM (HL5SG)

Risk-Adjusted Performance

Very Weak

Over the last 90 days HEALTHSTREAM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, HEALTHSTREAM (HL5SG) is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Norfolk Southern

Risk-Adjusted Performance

Very Weak

Over the last 90 days Norfolk Southern has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Norfolk Southern is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with HEALTHSTREAM (HL5SG) and Norfolk Southern

The main advantage of trading using opposite HEALTHSTREAM (HL5SG) and Norfolk Southern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HEALTHSTREAM (HL5SG) 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 HEALTHSTREAM 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.