Correlation Between BII Railway and Aqua America

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

Diversification Opportunities for BII Railway and Aqua America

-0.55

Correlation Coefficient

BII Railway  Aqua America

Excellent diversification

The 3 months correlation between BII and Aqua is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding BII Railway Transportation and Aqua America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aqua America 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 Aqua America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aqua America has no effect on the direction of BII Railway i.e., BII Railway and Aqua America go up and down completely randomly.

Pair Corralation between BII Railway and Aqua America

Assuming the 90 days horizon BII Railway Transportation is expected to generate 2.65 times more return on investment than Aqua America. However, BII Railway is 2.65 times more volatile than Aqua America. It trades about 0.01 of its potential returns per unit of risk. Aqua America is currently generating about -0.02 per unit of risk. If you would invest  3.30  in BII Railway Transportation on October 11, 2024 and sell it today you would lose (0.55) from holding BII Railway Transportation or give up 16.67% of portfolio value over 90 days.

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

BII Railway Transportation  vs.  Aqua America

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.

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.

Pair Trading with BII Railway and Aqua America

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

The idea behind BII Railway Transportation and Aqua America 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.