Correlation Between BII Railway and Daikin IndustriesLtd

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

Diversification Opportunities for BII Railway and Daikin IndustriesLtd

0.63

Correlation Coefficient

BII Railway  Daikin IndustriesLtd

Poor diversification

The 3 months correlation between BII and Daikin is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding BII Railway Transportation and Daikin IndustriesLtd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daikin IndustriesLtd 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 Daikin IndustriesLtd. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daikin IndustriesLtd has no effect on the direction of BII Railway i.e., BII Railway and Daikin IndustriesLtd go up and down completely randomly.

Pair Corralation between BII Railway and Daikin IndustriesLtd

Assuming the 90 days horizon BII Railway is expected to generate 3.66 times less return on investment than Daikin IndustriesLtd. But when comparing it to its historical volatility, BII Railway Transportation is 1.02 times less risky than Daikin IndustriesLtd. It trades about 0.01 of its potential returns per unit of risk. Daikin IndustriesLtd is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  9,166  in Daikin IndustriesLtd on October 11, 2024 and sell it today you would earn a total of  2,284  from holding Daikin IndustriesLtd or generate 24.92% return on investment over 90 days.

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

BII Railway Transportation  vs.  Daikin IndustriesLtd

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.

Daikin IndustriesLtd

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Daikin IndustriesLtd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Daikin IndustriesLtd is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with BII Railway and Daikin IndustriesLtd

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

The idea behind BII Railway Transportation and Daikin IndustriesLtd 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.