Correlation Between BII Railway and Diageo Plc

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

Diversification Opportunities for BII Railway and Diageo Plc

0.39

Correlation Coefficient

BII Railway  Diageo Plc

Weak diversification

The 3 months correlation between BII and Diageo is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding BII Railway Transportation and Diageo plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo plc 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 Diageo Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diageo plc has no effect on the direction of BII Railway i.e., BII Railway and Diageo Plc go up and down completely randomly.

Pair Corralation between BII Railway and Diageo Plc

Assuming the 90 days horizon BII Railway Transportation is expected to generate 1.0 times more return on investment than Diageo Plc. However, BII Railway is 1.0 times more volatile than Diageo plc. It trades about 0.06 of its potential returns per unit of risk. Diageo plc is currently generating about -0.08 per unit of risk. If you would invest  2.60  in BII Railway Transportation on October 26, 2024 and sell it today you would earn a total of  0.15  from holding BII Railway Transportation or generate 5.77% return on investment over 90 days.

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

BII Railway Transportation  vs.  Diageo plc

BII Railway Transpor

Risk-Adjusted Performance

5 of 100

Modest

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 uncertain basic indicators, BII Railway may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Diageo plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diageo plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's forward indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with BII Railway and Diageo Plc

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

The idea behind BII Railway Transportation and Diageo plc 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.