Correlation Between BII Railway and Nordic Semiconductor

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

Diversification Opportunities for BII Railway and Nordic Semiconductor

0.11

Correlation Coefficient

BII Railway  Nordic Semiconductor

Average diversification

The 3 months correlation between BII and Nordic is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding BII Railway Transportation and Nordic Semiconductor ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nordic Semiconductor ASA 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 Nordic Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nordic Semiconductor ASA has no effect on the direction of BII Railway i.e., BII Railway and Nordic Semiconductor go up and down completely randomly.

Pair Corralation between BII Railway and Nordic Semiconductor

Assuming the 90 days horizon BII Railway Transportation is expected to generate 0.94 times more return on investment than Nordic Semiconductor. However, BII Railway Transportation is 1.06 times less risky than Nordic Semiconductor. It trades about 0.0 of its potential returns per unit of risk. Nordic Semiconductor ASA is currently generating about 0.0 per unit of risk. If you would invest  3.40  in BII Railway Transportation on October 26, 2024 and sell it today you would lose (0.70) from holding BII Railway Transportation or give up 20.59% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

BII Railway Transportation  vs.  Nordic Semiconductor ASA

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.

Nordic Semiconductor ASA

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nordic Semiconductor ASA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Nordic Semiconductor may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with BII Railway and Nordic Semiconductor

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

The idea behind BII Railway Transportation and Nordic Semiconductor ASA 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.