Correlation Between Norfolk Southern and NISOURCE

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

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

Diversification Opportunities for Norfolk Southern and NISOURCE

0.2

Correlation Coefficient

Norfolk Southern  NISOURCE

Modest diversification

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

Pair Corralation between Norfolk Southern and NISOURCE

Considering the 90-day investment horizon Norfolk Southern is expected to generate 1391.39 times less return on investment than NISOURCE. But when comparing it to its historical volatility, Norfolk Southern is 71.3 times less risky than NISOURCE. It trades about 0.01 of its potential returns per unit of risk. NISOURCE FIN P is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  10,282  in NISOURCE FIN P on October 11, 2024 and sell it today you would lose (1,244) from holding NISOURCE FIN P or give up 12.1% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	63.64%
Values	Daily Returns

Norfolk Southern  vs.  NISOURCE FIN P

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.

NISOURCE FIN P

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NISOURCE FIN P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for NISOURCE FIN P investors.

Pair Trading with Norfolk Southern and NISOURCE

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

The idea behind Norfolk Southern and NISOURCE FIN 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.

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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.