Correlation Between Norfolk Southern and Aterian
Can any of the company-specific risk be diversified away by investing in both Norfolk Southern and Aterian 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 Aterian into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Norfolk Southern and Aterian, you can compare the effects of market volatilities on Norfolk Southern and Aterian 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 Aterian. Check out your portfolio center. Please also check ongoing floating volatility patterns of Norfolk Southern and Aterian.
Diversification Opportunities for Norfolk Southern and Aterian
-0.3 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Norfolk and Aterian is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Norfolk Southern and Aterian in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aterian 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 Aterian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aterian has no effect on the direction of Norfolk Southern i.e., Norfolk Southern and Aterian go up and down completely randomly.
Pair Corralation between Norfolk Southern and Aterian
Considering the 90-day investment horizon Norfolk Southern is expected to generate 0.4 times more return on investment than Aterian. However, Norfolk Southern is 2.52 times less risky than Aterian. It trades about 0.1 of its potential returns per unit of risk. Aterian is currently generating about 0.03 per unit of risk. If you would invest 22,088 in Norfolk Southern on September 3, 2024 and sell it today you would earn a total of 5,497 from holding Norfolk Southern or generate 24.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Norfolk Southern vs. Aterian
Performance |
| Timeline |
| Norfolk Southern |
| Aterian |
Norfolk Southern and Aterian Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Norfolk Southern and Aterian
The main advantage of trading using opposite Norfolk Southern and Aterian positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Norfolk Southern position performs unexpectedly, Aterian 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 Aterian will offset losses from the drop in Aterian's long position.The idea behind Norfolk Southern and Aterian 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 Transaction History module to view history of all your transactions and understand their impact on performance.
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