Correlation Between Southern and Norfolk Southern

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Can any of the company-specific risk be diversified away by investing in both Southern 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 Southern and Norfolk Southern into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southern Company and Norfolk Southern, you can compare the effects of market volatilities on Southern 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 Southern with a short position of Norfolk Southern. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southern and Norfolk Southern.

Diversification Opportunities for Southern and Norfolk Southern

0.21
  Correlation Coefficient

Modest diversification

The 3 months correlation between Southern and Norfolk is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Southern Company and Norfolk Southern in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norfolk Southern and 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 Southern 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 Southern i.e., Southern and Norfolk Southern go up and down completely randomly.

Pair Corralation between Southern and Norfolk Southern

Allowing for the 90-day total investment horizon Southern Company is expected to generate 0.73 times more return on investment than Norfolk Southern. However, Southern Company is 1.37 times less risky than Norfolk Southern. It trades about 0.32 of its potential returns per unit of risk. Norfolk Southern is currently generating about 0.17 per unit of risk. If you would invest  6,278  in Southern Company on September 10, 2022 and sell it today you would earn a total of  590.00  from holding Southern Company or generate 9.4% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Southern Company  vs.  Norfolk Southern

 Performance (%) 
       Timeline  
Southern 
Southern Performance
0 of 100
Over the last 90 days Southern Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2023. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Southern Price Channel

Norfolk Southern 
Norfolk Performance
0 of 100
Over the last 90 days Norfolk Southern has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Norfolk Southern is not utilizing all of its potentials. The new stock price disturbance, may contribute to short-term losses for the investors.

Norfolk Price Channel

Southern and Norfolk Southern Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Southern and Norfolk Southern

The main advantage of trading using opposite Southern and Norfolk Southern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southern 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.
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The idea behind Southern Company and Norfolk Southern 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.
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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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.

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