Correlation Between Union Pacific and CSX

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

By analyzing existing cross correlation between Union Pacific and CSX Corporation, you can compare the effects of market volatilities on Union Pacific and CSX 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 Union Pacific with a short position of CSX. Check out your portfolio center. Please also check ongoing floating volatility patterns of Union Pacific and CSX.

Diversification Opportunities for Union Pacific and CSX

0.78

Correlation Coefficient

Union Pacific  CSX

Poor diversification

The 3 months correlation between Union and CSX is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Union Pacific and CSX Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CSX Corporation and Union Pacific 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 Union Pacific are associated (or correlated) with CSX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CSX Corporation has no effect on the direction of Union Pacific i.e., Union Pacific and CSX go up and down completely randomly.

Pair Corralation between Union Pacific and CSX

Assuming the 90 days horizon Union Pacific is expected to generate 0.86 times more return on investment than CSX. However, Union Pacific is 1.16 times less risky than CSX. It trades about -0.19 of its potential returns per unit of risk. CSX Corporation is currently generating about -0.37 per unit of risk. If you would invest  22,747  in Union Pacific on September 23, 2024 and sell it today you would lose (1,037) from holding Union Pacific or give up 4.56% of portfolio value over 90 days.

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

Union Pacific  vs.  CSX Corp.

Union Pacific

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Union Pacific has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Union Pacific is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

CSX Corporation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CSX Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, CSX is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Union Pacific and CSX

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

The idea behind Union Pacific and CSX Corporation 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 Global Correlations module to find global opportunities by holding instruments from different markets.