Correlation Between BII Railway and Evolution

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

Diversification Opportunities for BII Railway and Evolution

0.01

Correlation Coefficient

BII Railway  Evolution

Significant diversification

The 3 months correlation between BII and Evolution is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding BII Railway Transportation and Evolution AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evolution AB 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 Evolution. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evolution AB has no effect on the direction of BII Railway i.e., BII Railway and Evolution go up and down completely randomly.

Pair Corralation between BII Railway and Evolution

Assuming the 90 days horizon BII Railway Transportation is expected to generate 1.84 times more return on investment than Evolution. However, BII Railway is 1.84 times more volatile than Evolution AB. It trades about 0.01 of its potential returns per unit of risk. Evolution AB is currently generating about -0.02 per unit of risk. If you would invest  3.20  in BII Railway Transportation on October 4, 2024 and sell it today you would lose (0.40) from holding BII Railway Transportation or give up 12.5% of portfolio value over 90 days.

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

BII Railway Transportation  vs.  Evolution AB

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 fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Evolution AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Evolution AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with BII Railway and Evolution

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

The idea behind BII Railway Transportation and Evolution AB 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.