Correlation Between Norfolk Southern and East Japan
Can any of the company-specific risk be diversified away by investing in both Norfolk Southern and East Japan 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 East Japan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Norfolk Southern and East Japan Railway, you can compare the effects of market volatilities on Norfolk Southern and East Japan 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 East Japan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Norfolk Southern and East Japan.
Diversification Opportunities for Norfolk Southern and East Japan
-0.31 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Norfolk and East is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Norfolk Southern and East Japan Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on East Japan 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 East Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of East Japan Railway has no effect on the direction of Norfolk Southern i.e., Norfolk Southern and East Japan go up and down completely randomly.
Pair Corralation between Norfolk Southern and East Japan
Considering the 90-day investment horizon Norfolk Southern is expected to generate 1.52 times more return on investment than East Japan. However, Norfolk Southern is 1.52 times more volatile than East Japan Railway. It trades about 0.1 of its potential returns per unit of risk. East Japan Railway is currently generating about -0.11 per unit of risk. If you would invest 24,106 in Norfolk Southern on August 25, 2024 and sell it today you would earn a total of 2,772 from holding Norfolk Southern or generate 11.5% 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. East Japan Railway
Performance |
| Timeline |
| Norfolk Southern |
| East Japan Railway |
Norfolk Southern and East Japan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Norfolk Southern and East Japan
The main advantage of trading using opposite Norfolk Southern and East Japan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Norfolk Southern position performs unexpectedly, East Japan 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 East Japan will offset losses from the drop in East Japan'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 |
| East Japan vs. Central Japan Railway | East Japan vs. LB Foster | East Japan vs. Canadian National Railway | East Japan vs. West Japan Railway |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
Other Complementary Tools
| Portfolio Volatility Check portfolio volatility and analyze historical return density to properly model market risk | |
| Portfolio Diagnostics Use generated alerts and portfolio events aggregator to diagnose current holdings | |
| Equity Forecasting Use basic forecasting models to generate price predictions and determine price momentum | |
| Alpha Finder Use alpha and beta coefficients to find investment opportunities after accounting for the risk | |
| Correlation Analysis Reduce portfolio risk simply by holding instruments which are not perfectly correlated |