Correlation Between BII Railway and DFS Furniture

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

By analyzing existing cross correlation between BII Railway Transportation and DFS Furniture PLC, you can compare the effects of market volatilities on BII Railway and DFS Furniture 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 BII Railway with a short position of DFS Furniture. Check out your portfolio center. Please also check ongoing floating volatility patterns of BII Railway and DFS Furniture.

Diversification Opportunities for BII Railway and DFS Furniture

0.35

Correlation Coefficient

BII Railway  DFS Furniture

Weak diversification

The 3 months correlation between BII and DFS is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding BII Railway Transportation and DFS Furniture PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DFS Furniture PLC and BII Railway 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 BII Railway Transportation are associated (or correlated) with DFS Furniture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DFS Furniture PLC has no effect on the direction of BII Railway i.e., BII Railway and DFS Furniture go up and down completely randomly.

Pair Corralation between BII Railway and DFS Furniture

Assuming the 90 days horizon BII Railway Transportation is expected to under-perform the DFS Furniture. But the stock apears to be less risky and, when comparing its historical volatility, BII Railway Transportation is 1.1 times less risky than DFS Furniture. The stock trades about -0.04 of its potential returns per unit of risk. The DFS Furniture PLC is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  156.00  in DFS Furniture PLC on September 5, 2024 and sell it today you would earn a total of  5.00  from holding DFS Furniture PLC or generate 3.21% return on investment over 90 days.

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

BII Railway Transportation  vs.  DFS Furniture PLC

BII Railway Transpor

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BII Railway Transportation are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, BII Railway is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

DFS Furniture PLC

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DFS Furniture PLC are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, DFS Furniture unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BII Railway and DFS Furniture

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

The idea behind BII Railway Transportation and DFS Furniture PLC 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.