Correlation Between Norfolk Southern and LB Foster
Can any of the company-specific risk be diversified away by investing in both Norfolk Southern and LB Foster 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 LB Foster into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Norfolk Southern and LB Foster, you can compare the effects of market volatilities on Norfolk Southern and LB Foster 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 LB Foster. Check out your portfolio center. Please also check ongoing floating volatility patterns of Norfolk Southern and LB Foster.
Diversification Opportunities for Norfolk Southern and LB Foster
0.02 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Norfolk and FSTR is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Norfolk Southern and LB Foster in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LB Foster 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 LB Foster. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LB Foster has no effect on the direction of Norfolk Southern i.e., Norfolk Southern and LB Foster go up and down completely randomly.
Pair Corralation between Norfolk Southern and LB Foster
Considering the 90-day investment horizon Norfolk Southern is expected to under-perform the LB Foster. But the stock apears to be less risky and, when comparing its historical volatility, Norfolk Southern is 1.38 times less risky than LB Foster. The stock trades about -0.17 of its potential returns per unit of risk. The LB Foster is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest 2,566 in LB Foster on January 25, 2024 and sell it today you would lose (115.00) from holding LB Foster or give up 4.48% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Norfolk Southern vs. LB Foster
Performance |
| Timeline |
| Norfolk Southern |
| LB Foster |
Norfolk Southern and LB Foster Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Norfolk Southern and LB Foster
The main advantage of trading using opposite Norfolk Southern and LB Foster positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Norfolk Southern position performs unexpectedly, LB Foster 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 LB Foster will offset losses from the drop in LB Foster's long position.| Norfolk Southern vs. Westinghouse Air Brake | Norfolk Southern vs. Trinity Industries | Norfolk Southern vs. Greenbrier Companies | Norfolk Southern vs. LB Foster |
| LB Foster vs. Trinity Industries | LB Foster vs. Freightcar America | LB Foster vs. Westinghouse Air Brake | LB Foster vs. Norfolk Southern |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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