Correlation Between MTR and Norfolk Southern

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

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

Diversification Opportunities for MTR and Norfolk Southern

-0.24

Correlation Coefficient

MTR  Norfolk Southern

Very good diversification

The 3 months correlation between MTR and Norfolk is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding MTR Limited and Norfolk Southern in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norfolk Southern and MTR 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 MTR Limited 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 MTR i.e., MTR and Norfolk Southern go up and down completely randomly.

Pair Corralation between MTR and Norfolk Southern

Assuming the 90 days horizon MTR Limited is expected to generate 1.09 times more return on investment than Norfolk Southern. However, MTR is 1.09 times more volatile than Norfolk Southern. It trades about 0.06 of its potential returns per unit of risk. Norfolk Southern is currently generating about -0.4 per unit of risk. If you would invest  326.00  in MTR Limited on September 23, 2024 and sell it today you would earn a total of  6.00  from holding MTR Limited or generate 1.84% return on investment over 90 days.

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

MTR Limited  vs.  Norfolk Southern

MTR Limited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MTR Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, MTR 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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with MTR and Norfolk Southern

The main advantage of trading using opposite MTR and Norfolk Southern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MTR 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 MTR Limited 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.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..