Correlation Between CSX and LB Foster

Can any of the company-specific risk be diversified away by investing in both CSX 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 CSX and LB Foster into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CSX Corporation and LB Foster, you can compare the effects of market volatilities on CSX 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 CSX with a short position of LB Foster. Check out your portfolio center. Please also check ongoing floating volatility patterns of CSX and LB Foster.

Diversification Opportunities for CSX and LB Foster

-0.14

Correlation Coefficient

CSX  LB Foster

Good diversification

The 3 months correlation between CSX and FSTR is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding CSX Corp. and LB Foster in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LB Foster and CSX 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 CSX Corporation 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 CSX i.e., CSX and LB Foster go up and down completely randomly.

Pair Corralation between CSX and LB Foster

Considering the 90-day investment horizon CSX Corporation is expected to generate 0.55 times more return on investment than LB Foster. However, CSX Corporation is 1.83 times less risky than LB Foster. It trades about -0.3 of its potential returns per unit of risk. LB Foster is currently generating about -0.17 per unit of risk. If you would invest  3,684  in CSX Corporation on January 25, 2024 and sell it today you would lose (212.00) from holding CSX Corporation or give up 5.75% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

CSX Corp.  vs.  LB Foster

CSX Corporation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CSX Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, CSX is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

LB Foster

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LB Foster are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, LB Foster is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with CSX and LB Foster

The main advantage of trading using opposite CSX and LB Foster positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CSX 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.

The idea behind CSX Corporation and LB Foster 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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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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.