Correlation Between BII Railway and Mitsui Chemicals

Can any of the company-specific risk be diversified away by investing in both BII Railway and Mitsui Chemicals 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 Mitsui Chemicals 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 Mitsui Chemicals, you can compare the effects of market volatilities on BII Railway and Mitsui Chemicals 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 Mitsui Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of BII Railway and Mitsui Chemicals.

Diversification Opportunities for BII Railway and Mitsui Chemicals

0.33

Correlation Coefficient

BII Railway  Mitsui Chemicals

Weak diversification

The 3 months correlation between BII and Mitsui is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding BII Railway Transportation and Mitsui Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mitsui Chemicals 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 Mitsui Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mitsui Chemicals has no effect on the direction of BII Railway i.e., BII Railway and Mitsui Chemicals go up and down completely randomly.

Pair Corralation between BII Railway and Mitsui Chemicals

Assuming the 90 days horizon BII Railway Transportation is expected to generate 2.05 times more return on investment than Mitsui Chemicals. However, BII Railway is 2.05 times more volatile than Mitsui Chemicals. It trades about 0.01 of its potential returns per unit of risk. Mitsui Chemicals is currently generating about 0.01 per unit of risk. If you would invest  3.30  in BII Railway Transportation on September 28, 2024 and sell it today you would lose (0.50) from holding BII Railway Transportation or give up 15.15% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

BII Railway Transportation  vs.  Mitsui Chemicals

BII Railway Transpor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BII Railway Transportation has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Mitsui Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mitsui Chemicals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's forward 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.

Pair Trading with BII Railway and Mitsui Chemicals

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

The idea behind BII Railway Transportation and Mitsui Chemicals 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.