Correlation Between Stepstone and NORFOLK

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

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

Diversification Opportunities for Stepstone and NORFOLK

0.35

Correlation Coefficient

Stepstone  NORFOLK

Weak diversification

The 3 months correlation between Stepstone and NORFOLK is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Stepstone Group 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 Stepstone 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 Stepstone Group 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 Stepstone i.e., Stepstone and NORFOLK go up and down completely randomly.

Pair Corralation between Stepstone and NORFOLK

Given the investment horizon of 90 days Stepstone Group is expected to under-perform the NORFOLK. In addition to that, Stepstone is 7.42 times more volatile than NORFOLK SOUTHN P. It trades about -0.11 of its total potential returns per unit of risk. NORFOLK SOUTHN P is currently generating about -0.2 per unit of volatility. If you would invest  9,931  in NORFOLK SOUTHN P on October 14, 2024 and sell it today you would lose (144.00) from holding NORFOLK SOUTHN P or give up 1.45% of portfolio value over 90 days.

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

Stepstone Group  vs.  NORFOLK SOUTHN P

Stepstone Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stepstone Group has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Stepstone is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail 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 somewhat strong basic indicators, NORFOLK is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Stepstone and NORFOLK

The main advantage of trading using opposite Stepstone and NORFOLK positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepstone 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 Stepstone Group 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.