Correlation Between Old Dominion and Norfolk Southern

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

By analyzing existing cross correlation between Old Dominion Freight and Norfolk Southern, you can compare the effects of market volatilities on Old Dominion and Norfolk Southern 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 Old Dominion with a short position of Norfolk Southern. Check out your portfolio center. Please also check ongoing floating volatility patterns of Old Dominion and Norfolk Southern.

Diversification Opportunities for Old Dominion and Norfolk Southern

0.94

Correlation Coefficient

Old Dominion  Norfolk Southern

Almost no diversification

The 3 months correlation between Old and Norfolk is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Old Dominion Freight and Norfolk Southern in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norfolk Southern and Old Dominion 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 Old Dominion Freight are associated (or correlated) with Norfolk Southern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Norfolk Southern has no effect on the direction of Old Dominion i.e., Old Dominion and Norfolk Southern go up and down completely randomly.

Pair Corralation between Old Dominion and Norfolk Southern

Given the investment horizon of 90 days Old Dominion Freight is expected to under-perform the Norfolk Southern. In addition to that, Old Dominion is 1.13 times more volatile than Norfolk Southern. It trades about -0.45 of its total potential returns per unit of risk. Norfolk Southern is currently generating about -0.3 per unit of volatility. If you would invest  25,608  in Norfolk Southern on October 11, 2024 and sell it today you would lose (1,917) from holding Norfolk Southern or give up 7.49% of portfolio value over 90 days.

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

Old Dominion Freight  vs.  Norfolk Southern

Old Dominion Freight

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Old Dominion Freight has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

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.

Pair Trading with Old Dominion and Norfolk Southern

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

The idea behind Old Dominion Freight and Norfolk Southern 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.