Correlation Between Norfolk Southern and Reliance Steel

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

By analyzing existing cross correlation between Norfolk Southern and Reliance Steel Aluminum, you can compare the effects of market volatilities on Norfolk Southern and Reliance Steel 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 Reliance Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Norfolk Southern and Reliance Steel.

Diversification Opportunities for Norfolk Southern and Reliance Steel

0.94

Correlation Coefficient

Norfolk Southern  Reliance Steel

Almost no diversification

The 3 months correlation between Norfolk and Reliance is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Norfolk Southern and Reliance Steel Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliance Steel Aluminum 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 Reliance Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reliance Steel Aluminum has no effect on the direction of Norfolk Southern i.e., Norfolk Southern and Reliance Steel go up and down completely randomly.

Pair Corralation between Norfolk Southern and Reliance Steel

Assuming the 90 days horizon Norfolk Southern is expected to generate 0.93 times more return on investment than Reliance Steel. However, Norfolk Southern is 1.07 times less risky than Reliance Steel. It trades about 0.03 of its potential returns per unit of risk. Reliance Steel Aluminum is currently generating about 0.02 per unit of risk. If you would invest  20,008  in Norfolk Southern on October 5, 2024 and sell it today you would earn a total of  2,392  from holding Norfolk Southern or generate 11.96% return on investment over 90 days.

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

Norfolk Southern  vs.  Reliance Steel Aluminum

Norfolk Southern

Risk-Adjusted Performance

0 of 100

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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Reliance Steel Aluminum

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with Norfolk Southern and Reliance Steel

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

The idea behind Norfolk Southern and Reliance Steel Aluminum 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.