Correlation Between NORFOLK and Universal Stainless

Can any of the company-specific risk be diversified away by investing in both NORFOLK and Universal Stainless 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 Universal Stainless 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 Universal Stainless Alloy, you can compare the effects of market volatilities on NORFOLK and Universal Stainless 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 Universal Stainless. Check out your portfolio center. Please also check ongoing floating volatility patterns of NORFOLK and Universal Stainless.

Diversification Opportunities for NORFOLK and Universal Stainless

-0.43

Correlation Coefficient

NORFOLK  Universal Stainless

Very good diversification

The 3 months correlation between NORFOLK and Universal is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding NORFOLK SOUTHN P and Universal Stainless Alloy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Stainless Alloy 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 Universal Stainless. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Stainless Alloy has no effect on the direction of NORFOLK i.e., NORFOLK and Universal Stainless go up and down completely randomly.

Pair Corralation between NORFOLK and Universal Stainless

Assuming the 90 days trading horizon NORFOLK SOUTHN P is expected to under-perform the Universal Stainless. But the bond apears to be less risky and, when comparing its historical volatility, NORFOLK SOUTHN P is 1.3 times less risky than Universal Stainless. The bond trades about -0.09 of its potential returns per unit of risk. The Universal Stainless Alloy is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  4,364  in Universal Stainless Alloy on October 26, 2024 and sell it today you would earn a total of  135.00  from holding Universal Stainless Alloy or generate 3.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

NORFOLK SOUTHN P  vs.  Universal Stainless Alloy

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 current stock price disturbance, may contribute to short-term losses for the investors.

Universal Stainless Alloy

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Stainless Alloy are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Universal Stainless is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with NORFOLK and Universal Stainless

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

The idea behind NORFOLK SOUTHN P and Universal Stainless Alloy 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.