Correlation Between MTRLimited and Norfolk Southern

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

By analyzing existing cross correlation between MTR Limited and Norfolk Southern, you can compare the effects of market volatilities on MTRLimited 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 MTRLimited with a short position of Norfolk Southern. Check out your portfolio center. Please also check ongoing floating volatility patterns of MTRLimited and Norfolk Southern.

Diversification Opportunities for MTRLimited and Norfolk Southern

0.69

Correlation Coefficient

MTRLimited  Norfolk Southern

Poor diversification

The 3 months correlation between MTRLimited and Norfolk is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding MTR Limited and Norfolk Southern in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norfolk Southern and MTRLimited 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 MTR Limited 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 MTRLimited i.e., MTRLimited and Norfolk Southern go up and down completely randomly.

Pair Corralation between MTRLimited and Norfolk Southern

Assuming the 90 days horizon MTRLimited is expected to generate 4.73 times less return on investment than Norfolk Southern. But when comparing it to its historical volatility, MTR Limited is 1.07 times less risky than Norfolk Southern. It trades about 0.04 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  19,380  in Norfolk Southern on April 23, 2025 and sell it today you would earn a total of  4,420  from holding Norfolk Southern or generate 22.81% return on investment over 90 days.

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

MTR Limited  vs.  Norfolk Southern

MTR Limited

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MTR Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, MTRLimited is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Norfolk Southern

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Norfolk Southern are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Norfolk Southern reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MTRLimited and Norfolk Southern

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

The idea behind MTR Limited 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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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.