Correlation Between Norfolk Southern and Canadian Pacific
Can any of the company-specific risk be diversified away by investing in both Norfolk Southern and Canadian Pacific 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 Canadian Pacific into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Norfolk Southern and Canadian Pacific Railway, you can compare the effects of market volatilities on Norfolk Southern and Canadian Pacific 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 Canadian Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of Norfolk Southern and Canadian Pacific.
Diversification Opportunities for Norfolk Southern and Canadian Pacific
-0.49 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Norfolk and Canadian is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Norfolk Southern and Canadian Pacific Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Pacific Railway 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 Canadian Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Pacific Railway has no effect on the direction of Norfolk Southern i.e., Norfolk Southern and Canadian Pacific go up and down completely randomly.
Pair Corralation between Norfolk Southern and Canadian Pacific
Considering the 90-day investment horizon Norfolk Southern is expected to generate 2.15 times more return on investment than Canadian Pacific. However, Norfolk Southern is 2.15 times more volatile than Canadian Pacific Railway. It trades about 0.05 of its potential returns per unit of risk. Canadian Pacific Railway is currently generating about -0.22 per unit of risk. If you would invest 25,903 in Norfolk Southern on August 23, 2024 and sell it today you would earn a total of 523.00 from holding Norfolk Southern or generate 2.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Norfolk Southern vs. Canadian Pacific Railway
Performance |
| Timeline |
| Norfolk Southern |
| Canadian Pacific Railway |
Norfolk Southern and Canadian Pacific Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Norfolk Southern and Canadian Pacific
The main advantage of trading using opposite Norfolk Southern and Canadian Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Norfolk Southern position performs unexpectedly, Canadian Pacific 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 Canadian Pacific will offset losses from the drop in Canadian Pacific's long position.| Norfolk Southern vs. Union Pacific | Norfolk Southern vs. Canadian Pacific Railway | Norfolk Southern vs. Canadian National Railway | Norfolk Southern vs. Westinghouse Air Brake |
| Canadian Pacific vs. Union Pacific | Canadian Pacific vs. CSX Corporation | Canadian Pacific vs. Norfolk Southern | Canadian Pacific vs. Westinghouse Air Brake |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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