Correlation Between Freightcar America and Norfolk Southern
Can any of the company-specific risk be diversified away by investing in both Freightcar America and Norfolk Southern 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 Freightcar America and Norfolk Southern into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Freightcar America and Norfolk Southern, you can compare the effects of market volatilities on Freightcar America and Norfolk Southern 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 Freightcar America with a short position of Norfolk Southern. Check out your portfolio center. Please also check ongoing floating volatility patterns of Freightcar America and Norfolk Southern.
Diversification Opportunities for Freightcar America and Norfolk Southern
0.25 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Freightcar and Norfolk is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Freightcar America and Norfolk Southern in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norfolk Southern and Freightcar America 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 Freightcar America are associated (or correlated) with Norfolk Southern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Norfolk Southern has no effect on the direction of Freightcar America i.e., Freightcar America and Norfolk Southern go up and down completely randomly.
Pair Corralation between Freightcar America and Norfolk Southern
Given the investment horizon of 90 days Freightcar America is expected to generate 2.89 times more return on investment than Norfolk Southern. However, Freightcar America is 2.89 times more volatile than Norfolk Southern. It trades about 0.14 of its potential returns per unit of risk. Norfolk Southern is currently generating about 0.06 per unit of risk. If you would invest 234.00 in Freightcar America on August 26, 2024 and sell it today you would earn a total of 711.00 from holding Freightcar America or generate 303.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Freightcar America vs. Norfolk Southern
Performance |
| Timeline |
| Freightcar America |
| Norfolk Southern |
Freightcar America and Norfolk Southern Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Freightcar America and Norfolk Southern
The main advantage of trading using opposite Freightcar America and Norfolk Southern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Freightcar America position performs unexpectedly, Norfolk Southern 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 Southern will offset losses from the drop in Norfolk Southern's long position.| Freightcar America vs. Greenbrier Companies | Freightcar America vs. LB Foster | Freightcar America vs. Westinghouse Air Brake | Freightcar America vs. CSX Corporation |
| Norfolk Southern vs. Union Pacific | Norfolk Southern vs. Canadian Pacific Railway | Norfolk Southern vs. Canadian National Railway | Norfolk Southern 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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