Correlation Between Transport International and BII Railway

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

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

Diversification Opportunities for Transport International and BII Railway

0.74

Correlation Coefficient

Transport International  BII Railway

Poor diversification

The 3 months correlation between Transport and BII is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Transport International Holdin and BII Railway Transportation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BII Railway Transpor and Transport International 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 Transport International Holdings are associated (or correlated) with BII Railway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BII Railway Transpor has no effect on the direction of Transport International i.e., Transport International and BII Railway go up and down completely randomly.

Pair Corralation between Transport International and BII Railway

Assuming the 90 days horizon Transport International is expected to generate 2.93 times less return on investment than BII Railway. But when comparing it to its historical volatility, Transport International Holdings is 1.84 times less risky than BII Railway. It trades about 0.04 of its potential returns per unit of risk. BII Railway Transportation is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2.35  in BII Railway Transportation on September 15, 2024 and sell it today you would earn a total of  0.30  from holding BII Railway Transportation or generate 12.77% return on investment over 90 days.

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

Transport International Holdin  vs.  BII Railway Transportation

Transport International

Risk-Adjusted Performance

3 of 100

Insignificant

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

BII Railway Transpor

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BII Railway Transportation are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, BII Railway reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Transport International and BII Railway

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

The idea behind Transport International Holdings and BII Railway Transportation 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.