Correlation Between Smith Douglas and NORFOLK

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

By analyzing existing cross correlation between Smith Douglas Homes and NORFOLK SOUTHN P, you can compare the effects of market volatilities on Smith Douglas and NORFOLK 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 Smith Douglas with a short position of NORFOLK. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smith Douglas and NORFOLK.

Diversification Opportunities for Smith Douglas and NORFOLK

0.26

Correlation Coefficient

Smith Douglas  NORFOLK

Modest diversification

The 3 months correlation between Smith and NORFOLK is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Smith Douglas Homes and NORFOLK SOUTHN P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NORFOLK SOUTHN P and Smith Douglas 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 Smith Douglas Homes are associated (or correlated) with NORFOLK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NORFOLK SOUTHN P has no effect on the direction of Smith Douglas i.e., Smith Douglas and NORFOLK go up and down completely randomly.

Pair Corralation between Smith Douglas and NORFOLK

Given the investment horizon of 90 days Smith Douglas Homes is expected to generate 10.62 times more return on investment than NORFOLK. However, Smith Douglas is 10.62 times more volatile than NORFOLK SOUTHN P. It trades about 0.04 of its potential returns per unit of risk. NORFOLK SOUTHN P is currently generating about 0.01 per unit of risk. If you would invest  2,400  in Smith Douglas Homes on September 23, 2024 and sell it today you would earn a total of  382.00  from holding Smith Douglas Homes or generate 15.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	62.83%
Values	Daily Returns

Smith Douglas Homes  vs.  NORFOLK SOUTHN P

Smith Douglas Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smith Douglas Homes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

NORFOLK SOUTHN P

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Smith Douglas and NORFOLK

The main advantage of trading using opposite Smith Douglas and NORFOLK positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smith Douglas position performs unexpectedly, NORFOLK 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 will offset losses from the drop in NORFOLK's long position.

The idea behind Smith Douglas Homes and NORFOLK SOUTHN P 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 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.