Correlation Between NORFOLK and Aspen Technology

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

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

Diversification Opportunities for NORFOLK and Aspen Technology

0.27

Correlation Coefficient

NORFOLK  Aspen Technology

Modest diversification

The 3 months correlation between NORFOLK and Aspen is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding NORFOLK SOUTHN P and Aspen Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aspen Technology and NORFOLK 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 NORFOLK SOUTHN P are associated (or correlated) with Aspen Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aspen Technology has no effect on the direction of NORFOLK i.e., NORFOLK and Aspen Technology go up and down completely randomly.

Pair Corralation between NORFOLK and Aspen Technology

Assuming the 90 days trading horizon NORFOLK is expected to generate 4.44 times less return on investment than Aspen Technology. But when comparing it to its historical volatility, NORFOLK SOUTHN P is 1.62 times less risky than Aspen Technology. It trades about 0.04 of its potential returns per unit of risk. Aspen Technology is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  25,080  in Aspen Technology on December 24, 2024 and sell it today you would earn a total of  1,353  from holding Aspen Technology or generate 5.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	92.98%
Values	Daily Returns

NORFOLK SOUTHN P  vs.  Aspen Technology

NORFOLK SOUTHN P

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NORFOLK SOUTHN P are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

Aspen Technology

Risk-Adjusted Performance

OK

Over the last 90 days Aspen Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very weak basic indicators, Aspen Technology may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with NORFOLK and Aspen Technology

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

The idea behind NORFOLK SOUTHN P and Aspen Technology 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.

Check out your portfolio center.

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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.