Correlation Between NI Holdings and NORFOLK

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

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

Diversification Opportunities for NI Holdings and NORFOLK

-0.01

Correlation Coefficient

NI Holdings  NORFOLK

Good diversification

The 3 months correlation between NODK and NORFOLK is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding NI Holdings 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 NI Holdings 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 NI Holdings 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 NI Holdings i.e., NI Holdings and NORFOLK go up and down completely randomly.

Pair Corralation between NI Holdings and NORFOLK

Given the investment horizon of 90 days NI Holdings is expected to under-perform the NORFOLK. In addition to that, NI Holdings is 2.42 times more volatile than NORFOLK SOUTHN P. It trades about -0.37 of its total potential returns per unit of risk. NORFOLK SOUTHN P is currently generating about -0.22 per unit of volatility. If you would invest  9,765  in NORFOLK SOUTHN P on October 12, 2024 and sell it today you would lose (244.00) from holding NORFOLK SOUTHN P or give up 2.5% of portfolio value over 90 days.

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

NI Holdings  vs.  NORFOLK SOUTHN P

NI Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NI Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, NI Holdings is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional 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 somewhat strong basic indicators, NORFOLK is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with NI Holdings and NORFOLK

The main advantage of trading using opposite NI Holdings and NORFOLK positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NI Holdings 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 NI Holdings 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.

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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.