Correlation Between Norfolk Southern and Central Japan

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

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

Diversification Opportunities for Norfolk Southern and Central Japan

-0.22

Correlation Coefficient

Norfolk Southern  Central Japan

Very good diversification

The 3 months correlation between Norfolk and Central is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Norfolk Southern and Central Japan Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Japan Railway and Norfolk Southern 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 Norfolk Southern are associated (or correlated) with Central Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Japan Railway has no effect on the direction of Norfolk Southern i.e., Norfolk Southern and Central Japan go up and down completely randomly.

Pair Corralation between Norfolk Southern and Central Japan

Assuming the 90 days horizon Norfolk Southern is expected to generate 1.32 times more return on investment than Central Japan. However, Norfolk Southern is 1.32 times more volatile than Central Japan Railway. It trades about 0.06 of its potential returns per unit of risk. Central Japan Railway is currently generating about -0.05 per unit of risk. If you would invest  19,767  in Norfolk Southern on October 2, 2024 and sell it today you would earn a total of  2,833  from holding Norfolk Southern or generate 14.33% return on investment over 90 days.

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

Norfolk Southern  vs.  Central Japan Railway

Norfolk Southern

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Norfolk Southern are ranked lower than 2 (%) 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.

Central Japan Railway

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Norfolk Southern and Central Japan

The main advantage of trading using opposite Norfolk Southern and Central Japan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Norfolk Southern position performs unexpectedly, Central Japan 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 Central Japan will offset losses from the drop in Central Japan's long position.

The idea behind Norfolk Southern and Central Japan Railway 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.