Correlation Between Aqua America and BII Railway

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

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

Diversification Opportunities for Aqua America and BII Railway

-0.67

Correlation Coefficient

Aqua America  BII Railway

Excellent diversification

The 3 months correlation between Aqua and BII is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Aqua America 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 Aqua America 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 Aqua America 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 Aqua America i.e., Aqua America and BII Railway go up and down completely randomly.

Pair Corralation between Aqua America and BII Railway

Assuming the 90 days trading horizon Aqua America is expected to generate 0.65 times more return on investment than BII Railway. However, Aqua America is 1.55 times less risky than BII Railway. It trades about -0.02 of its potential returns per unit of risk. BII Railway Transportation is currently generating about -0.07 per unit of risk. If you would invest  3,458  in Aqua America on October 10, 2024 and sell it today you would lose (86.00) from holding Aqua America or give up 2.49% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

Aqua America  vs.  BII Railway Transportation

Aqua America

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aqua America has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Aqua America is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

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 latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Aqua America and BII Railway

The main advantage of trading using opposite Aqua America and BII Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aqua America 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 Aqua America 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.