Correlation Between Norfolk Southern and GMxico Transportes

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

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

Diversification Opportunities for Norfolk Southern and GMxico Transportes

-0.2

Correlation Coefficient

Norfolk Southern  GMxico Transportes

Good diversification

The 3 months correlation between Norfolk and GMxico is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Norfolk Southern and GMxico Transportes SAB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMxico Transportes SAB 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 GMxico Transportes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GMxico Transportes SAB has no effect on the direction of Norfolk Southern i.e., Norfolk Southern and GMxico Transportes go up and down completely randomly.

Pair Corralation between Norfolk Southern and GMxico Transportes

Considering the 90-day investment horizon Norfolk Southern is expected to under-perform the GMxico Transportes. In addition to that, Norfolk Southern is 1.46 times more volatile than GMxico Transportes SAB. It trades about -0.3 of its total potential returns per unit of risk. GMxico Transportes SAB is currently generating about -0.17 per unit of volatility. If you would invest  161.00  in GMxico Transportes SAB on October 11, 2024 and sell it today you would lose (5.00) from holding GMxico Transportes SAB or give up 3.11% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Norfolk Southern  vs.  GMxico Transportes SAB

Norfolk Southern

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Norfolk Southern has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

GMxico Transportes SAB

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GMxico Transportes SAB are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, GMxico Transportes reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Norfolk Southern and GMxico Transportes

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

The idea behind Norfolk Southern and GMxico Transportes SAB 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.