Correlation Between Norfolk Southern and USD Partners

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

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

Diversification Opportunities for Norfolk Southern and USD Partners

0.1

Correlation Coefficient

Norfolk Southern  USD Partners

Average diversification

The 3 months correlation between Norfolk and USD is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Norfolk Southern and USD Partners LP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on USD Partners LP 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 USD Partners. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of USD Partners LP has no effect on the direction of Norfolk Southern i.e., Norfolk Southern and USD Partners go up and down completely randomly.

Pair Corralation between Norfolk Southern and USD Partners

If you would invest  24,974  in Norfolk Southern on October 25, 2024 and sell it today you would earn a total of  581.00  from holding Norfolk Southern or generate 2.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	1.67%
Values	Daily Returns

Norfolk Southern  vs.  USD Partners LP

Norfolk Southern

Risk-Adjusted Performance

2 of 100

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.

USD Partners LP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days USD Partners LP has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental indicators, USD Partners is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Norfolk Southern and USD Partners

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

The idea behind Norfolk Southern and USD Partners LP 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.