Correlation Between Norfolk Southern and CNA Financial

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

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

Diversification Opportunities for Norfolk Southern and CNA Financial

0.53

Correlation Coefficient

Norfolk Southern  CNA Financial

Very weak diversification

The 3 months correlation between Norfolk and CNA is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Norfolk Southern and CNA Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CNA Financial 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 CNA Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CNA Financial has no effect on the direction of Norfolk Southern i.e., Norfolk Southern and CNA Financial go up and down completely randomly.

Pair Corralation between Norfolk Southern and CNA Financial

Considering the 90-day investment horizon Norfolk Southern is expected to generate 1.57 times less return on investment than CNA Financial. In addition to that, Norfolk Southern is 1.05 times more volatile than CNA Financial. It trades about 0.03 of its total potential returns per unit of risk. CNA Financial is currently generating about 0.06 per unit of volatility. If you would invest  4,721  in CNA Financial on December 19, 2024 and sell it today you would earn a total of  186.00  from holding CNA Financial or generate 3.94% return on investment over 90 days.

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

Norfolk Southern  vs.  CNA Financial

Norfolk Southern

Risk-Adjusted Performance

Very 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. In spite of rather sound basic indicators, Norfolk Southern is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

CNA Financial

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CNA Financial are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, CNA Financial is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Norfolk Southern and CNA Financial

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

The idea behind Norfolk Southern and CNA Financial 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..