Correlation Between POWER METALS and BII Railway

Can any of the company-specific risk be diversified away by investing in both POWER METALS and BII Railway 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 POWER METALS and BII Railway into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between POWER METALS and BII Railway Transportation, you can compare the effects of market volatilities on POWER METALS and BII Railway 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 POWER METALS with a short position of BII Railway. Check out your portfolio center. Please also check ongoing floating volatility patterns of POWER METALS and BII Railway.

Diversification Opportunities for POWER METALS and BII Railway

0.77

Correlation Coefficient

POWER METALS  BII Railway

Poor diversification

The 3 months correlation between POWER and BII is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding POWER METALS and BII Railway Transportation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BII Railway Transpor and POWER METALS 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 POWER METALS are associated (or correlated) with BII Railway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BII Railway Transpor has no effect on the direction of POWER METALS i.e., POWER METALS and BII Railway go up and down completely randomly.

Pair Corralation between POWER METALS and BII Railway

Assuming the 90 days trading horizon POWER METALS is expected to generate 4.35 times more return on investment than BII Railway. However, POWER METALS is 4.35 times more volatile than BII Railway Transportation. It trades about 0.25 of its potential returns per unit of risk. BII Railway Transportation is currently generating about 0.04 per unit of risk. If you would invest  29.00  in POWER METALS on December 29, 2024 and sell it today you would earn a total of  47.00  from holding POWER METALS or generate 162.07% return on investment over 90 days.

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

POWER METALS  vs.  BII Railway Transportation

POWER METALS

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in POWER METALS are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, POWER METALS unveiled solid returns over the last few months and may actually be approaching a breakup point.

BII Railway Transpor

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BII Railway Transportation are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, BII Railway is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with POWER METALS and BII Railway

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

The idea behind POWER METALS and BII Railway Transportation 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..