Correlation Between 00108WAM2 and Norfolk Southern

Can any of the company-specific risk be diversified away by investing in both 00108WAM2 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 00108WAM2 and Norfolk Southern into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AEP Texas 21 and Norfolk Southern, you can compare the effects of market volatilities on 00108WAM2 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 00108WAM2 with a short position of Norfolk Southern. Check out your portfolio center. Please also check ongoing floating volatility patterns of 00108WAM2 and Norfolk Southern.

Diversification Opportunities for 00108WAM2 and Norfolk Southern

0.37

Correlation Coefficient

00108WAM2  Norfolk Southern

Weak diversification

The 3 months correlation between 00108WAM2 and Norfolk is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding AEP Texas 21 and Norfolk Southern in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norfolk Southern and 00108WAM2 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 AEP Texas 21 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 00108WAM2 i.e., 00108WAM2 and Norfolk Southern go up and down completely randomly.

Pair Corralation between 00108WAM2 and Norfolk Southern

Assuming the 90 days trading horizon AEP Texas 21 is expected to under-perform the Norfolk Southern. But the bond apears to be less risky and, when comparing its historical volatility, AEP Texas 21 is 1.35 times less risky than Norfolk Southern. The bond trades about -0.13 of its potential returns per unit of risk. The Norfolk Southern is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  23,664  in Norfolk Southern on December 24, 2024 and sell it today you would lose (489.00) from holding Norfolk Southern or give up 2.07% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

AEP Texas 21  vs.  Norfolk Southern

AEP Texas 21

Risk-Adjusted Performance

Very Weak

Over the last 90 days AEP Texas 21 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak 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 AEP Texas 21 investors.

Norfolk Southern

Risk-Adjusted Performance

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 00108WAM2 and Norfolk Southern

The main advantage of trading using opposite 00108WAM2 and Norfolk Southern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 00108WAM2 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 AEP Texas 21 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.