Correlation Between BII Railway and Kingfisher Plc

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

Diversification Opportunities for BII Railway and Kingfisher Plc

0.42

Correlation Coefficient

BII Railway  Kingfisher Plc

Very weak diversification

The 3 months correlation between BII and Kingfisher is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding BII Railway Transportation and Kingfisher plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kingfisher 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 Kingfisher Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kingfisher plc has no effect on the direction of BII Railway i.e., BII Railway and Kingfisher Plc go up and down completely randomly.

Pair Corralation between BII Railway and Kingfisher Plc

Assuming the 90 days horizon BII Railway Transportation is expected to generate 2.04 times more return on investment than Kingfisher Plc. However, BII Railway is 2.04 times more volatile than Kingfisher plc. It trades about 0.01 of its potential returns per unit of risk. Kingfisher plc 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	Weak
Accuracy	100.0%
Values	Daily Returns

BII Railway Transportation  vs.  Kingfisher plc

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.

Kingfisher plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kingfisher plc 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 forward 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 Kingfisher Plc

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

The idea behind BII Railway Transportation and Kingfisher 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.