Correlation Between Stepan and Norfolk Southern
Can any of the company-specific risk be diversified away by investing in both Stepan 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 Stepan and Norfolk Southern into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stepan Company and Norfolk Southern, you can compare the effects of market volatilities on Stepan 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 Stepan with a short position of Norfolk Southern. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepan and Norfolk Southern.
Diversification Opportunities for Stepan and Norfolk Southern
0.35 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Stepan and Norfolk is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Norfolk Southern in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norfolk Southern and Stepan 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 Stepan Company 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 Stepan i.e., Stepan and Norfolk Southern go up and down completely randomly.
Pair Corralation between Stepan and Norfolk Southern
Considering the 90-day investment horizon Stepan is expected to generate 1.62 times less return on investment than Norfolk Southern. But when comparing it to its historical volatility, Stepan Company is 1.04 times less risky than Norfolk Southern. It trades about 0.13 of its potential returns per unit of risk. Norfolk Southern is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 25,009 in Norfolk Southern on September 2, 2024 and sell it today you would earn a total of 2,576 from holding Norfolk Southern or generate 10.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Stepan Company vs. Norfolk Southern
Performance |
| Timeline |
| Stepan Company |
| Norfolk Southern |
Stepan and Norfolk Southern Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Stepan and Norfolk Southern
The main advantage of trading using opposite Stepan and Norfolk Southern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepan 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.| Stepan vs. Linde plc Ordinary | Stepan vs. Air Products and | Stepan vs. Aquagold International | Stepan vs. Thrivent High Yield |
| Norfolk Southern vs. Union Pacific | Norfolk Southern vs. Westinghouse Air Brake | Norfolk Southern vs. Trinity Industries | Norfolk Southern vs. Greenbrier Companies |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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