Correlation Between First Trust and NORFOLK

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

By analyzing existing cross correlation between First Trust Exchange Traded and NORFOLK SOUTHN P, you can compare the effects of market volatilities on First Trust and NORFOLK 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 First Trust with a short position of NORFOLK. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and NORFOLK.

Diversification Opportunities for First Trust and NORFOLK

-0.76

Correlation Coefficient

First Trust  NORFOLK

Pay attention - limited upside

The 3 months correlation between First and NORFOLK is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Exchange Traded and NORFOLK SOUTHN P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NORFOLK SOUTHN P and First Trust 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 First Trust Exchange Traded are associated (or correlated) with NORFOLK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NORFOLK SOUTHN P has no effect on the direction of First Trust i.e., First Trust and NORFOLK go up and down completely randomly.

Pair Corralation between First Trust and NORFOLK

Given the investment horizon of 90 days First Trust Exchange Traded is expected to generate 0.64 times more return on investment than NORFOLK. However, First Trust Exchange Traded is 1.57 times less risky than NORFOLK. It trades about 0.11 of its potential returns per unit of risk. NORFOLK SOUTHN P is currently generating about -0.23 per unit of risk. If you would invest  2,778  in First Trust Exchange Traded on September 24, 2024 and sell it today you would earn a total of  42.00  from holding First Trust Exchange Traded or generate 1.51% return on investment over 90 days.

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

First Trust Exchange Traded  vs.  NORFOLK SOUTHN P

First Trust Exchange

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Exchange Traded are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, First Trust is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

NORFOLK SOUTHN P

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NORFOLK SOUTHN P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for NORFOLK SOUTHN P investors.

Pair Trading with First Trust and NORFOLK

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

The idea behind First Trust Exchange Traded and NORFOLK SOUTHN 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.