Correlation Between BII Railway and ETFS Coffee

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

Diversification Opportunities for BII Railway and ETFS Coffee

-0.25

Correlation Coefficient

BII Railway  ETFS Coffee

Very good diversification

The 3 months correlation between BII and ETFS is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding BII Railway Transportation and ETFS Coffee ETC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETFS Coffee ETC 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 ETFS Coffee. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETFS Coffee ETC has no effect on the direction of BII Railway i.e., BII Railway and ETFS Coffee go up and down completely randomly.

Pair Corralation between BII Railway and ETFS Coffee

Assuming the 90 days horizon BII Railway is expected to generate 50.38 times less return on investment than ETFS Coffee. But when comparing it to its historical volatility, BII Railway Transportation is 1.96 times less risky than ETFS Coffee. It trades about 0.01 of its potential returns per unit of risk. ETFS Coffee ETC is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  4,496  in ETFS Coffee ETC on September 17, 2024 and sell it today you would earn a total of  623.00  from holding ETFS Coffee ETC or generate 13.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

BII Railway Transportation  vs.  ETFS Coffee ETC

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 fragile basic indicators, BII Railway reported solid returns over the last few months and may actually be approaching a breakup point.

ETFS Coffee ETC

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ETFS Coffee ETC are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, ETFS Coffee reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BII Railway and ETFS Coffee

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

The idea behind BII Railway Transportation and ETFS Coffee ETC 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.