Correlation Between Diageo PLC and NORFOLK

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Can any of the company-specific risk be diversified away by investing in both Diageo PLC 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 Diageo PLC and NORFOLK into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Diageo PLC ADR and NORFOLK SOUTHN P, you can compare the effects of market volatilities on Diageo PLC 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 Diageo PLC with a short position of NORFOLK. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diageo PLC and NORFOLK.

Diversification Opportunities for Diageo PLC and NORFOLK

0.7
  Correlation Coefficient

Poor diversification

The 3 months correlation between Diageo and NORFOLK is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR 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 Diageo PLC 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 Diageo PLC ADR 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 Diageo PLC i.e., Diageo PLC and NORFOLK go up and down completely randomly.

Pair Corralation between Diageo PLC and NORFOLK

Considering the 90-day investment horizon Diageo PLC ADR is expected to under-perform the NORFOLK. In addition to that, Diageo PLC is 1.38 times more volatile than NORFOLK SOUTHN P. It trades about -0.05 of its total potential returns per unit of risk. NORFOLK SOUTHN P is currently generating about 0.0 per unit of volatility. If you would invest  10,379  in NORFOLK SOUTHN P on September 5, 2024 and sell it today you would lose (28.00) from holding NORFOLK SOUTHN P or give up 0.27% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy55.76%
ValuesDaily Returns

Diageo PLC ADR  vs.  NORFOLK SOUTHN P

 Performance 
       Timeline  
Diageo PLC ADR 

Risk-Adjusted Performance

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Weak
 
Strong
Very Weak
Over the last 90 days Diageo PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.
NORFOLK SOUTHN P 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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.

Diageo PLC and NORFOLK Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Diageo PLC and NORFOLK

The main advantage of trading using opposite Diageo PLC and NORFOLK positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diageo PLC 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.
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The idea behind Diageo PLC ADR 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.

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