Correlation Between Nasdaq and NORFOLK

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

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

Diversification Opportunities for Nasdaq and NORFOLK

-0.03

Correlation Coefficient

Nasdaq  NORFOLK

Good diversification

The 3 months correlation between Nasdaq and NORFOLK is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc 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 Nasdaq 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 Nasdaq Inc 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 Nasdaq i.e., Nasdaq and NORFOLK go up and down completely randomly.

Pair Corralation between Nasdaq and NORFOLK

Given the investment horizon of 90 days Nasdaq Inc is expected to generate 0.52 times more return on investment than NORFOLK. However, Nasdaq Inc is 1.92 times less risky than NORFOLK. It trades about -0.22 of its potential returns per unit of risk. NORFOLK SOUTHN P is currently generating about -0.15 per unit of risk. If you would invest  8,128  in Nasdaq Inc on September 24, 2024 and sell it today you would lose (358.00) from holding Nasdaq Inc or give up 4.4% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	45.0%
Values	Daily Returns

Nasdaq Inc  vs.  NORFOLK SOUTHN P

Nasdaq Inc

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Nasdaq is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

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 unsteady performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for NORFOLK SOUTHN P investors.

Pair Trading with Nasdaq and NORFOLK

The main advantage of trading using opposite Nasdaq and NORFOLK positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq 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 Nasdaq Inc 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.