Correlation Between Norfolk Southern and American Airlines
Can any of the company-specific risk be diversified away by investing in both Norfolk Southern and American Airlines 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 Southern and American Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Norfolk Southern and American Airlines Group, you can compare the effects of market volatilities on Norfolk Southern and American Airlines 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 Southern with a short position of American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Norfolk Southern and American Airlines.
Diversification Opportunities for Norfolk Southern and American Airlines
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Norfolk and American is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Norfolk Southern and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines and Norfolk Southern 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 Southern are associated (or correlated) with American Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Airlines has no effect on the direction of Norfolk Southern i.e., Norfolk Southern and American Airlines go up and down completely randomly.
Pair Corralation between Norfolk Southern and American Airlines
Considering the 90-day investment horizon Norfolk Southern is expected to generate 1.01 times more return on investment than American Airlines. However, Norfolk Southern is 1.01 times more volatile than American Airlines Group. It trades about 0.18 of its potential returns per unit of risk. American Airlines Group is currently generating about 0.12 per unit of risk. If you would invest 25,222 in Norfolk Southern on August 29, 2024 and sell it today you would earn a total of 2,387 from holding Norfolk Southern or generate 9.46% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Norfolk Southern vs. American Airlines Group
Performance |
| Timeline |
| Norfolk Southern |
| American Airlines |
Norfolk Southern and American Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Norfolk Southern and American Airlines
The main advantage of trading using opposite Norfolk Southern and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Norfolk Southern position performs unexpectedly, American Airlines 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 American Airlines will offset losses from the drop in American Airlines' long position.| Norfolk Southern vs. Westinghouse Air Brake | Norfolk Southern vs. Trinity Industries | Norfolk Southern vs. Greenbrier Companies | Norfolk Southern vs. LB Foster |
| American Airlines vs. JetBlue Airways Corp | American Airlines vs. SkyWest | American Airlines vs. International Consolidated Airlines | American Airlines vs. Spirit Airlines |
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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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