Correlation Between Norfolk Southern and Allegiant Travel

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

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

Diversification Opportunities for Norfolk Southern and Allegiant Travel

0.71

Correlation Coefficient

Norfolk Southern  Allegiant Travel

Poor diversification

The 3 months correlation between Norfolk and Allegiant is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Norfolk Southern and Allegiant Travel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allegiant Travel 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 Allegiant Travel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allegiant Travel has no effect on the direction of Norfolk Southern i.e., Norfolk Southern and Allegiant Travel go up and down completely randomly.

Pair Corralation between Norfolk Southern and Allegiant Travel

Considering the 90-day investment horizon Norfolk Southern is expected to generate 8.33 times less return on investment than Allegiant Travel. But when comparing it to its historical volatility, Norfolk Southern is 1.72 times less risky than Allegiant Travel. It trades about 0.07 of its potential returns per unit of risk. Allegiant Travel is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  4,106  in Allegiant Travel on September 3, 2024 and sell it today you would earn a total of  3,971  from holding Allegiant Travel or generate 96.71% return on investment over 90 days.

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

Norfolk Southern  vs.  Allegiant Travel

Norfolk Southern

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Norfolk Southern are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Norfolk Southern may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Allegiant Travel

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Allegiant Travel are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Allegiant Travel unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Norfolk Southern and Allegiant Travel

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

The idea behind Norfolk Southern and Allegiant Travel 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.