Correlation Between ETFS Coffee and BII Railway

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

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

Diversification Opportunities for ETFS Coffee and BII Railway

-0.25

Correlation Coefficient

ETFS Coffee  BII Railway

Very good diversification

The 3 months correlation between ETFS and BII is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding ETFS Coffee ETC 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 ETFS Coffee 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 ETFS Coffee ETC 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 ETFS Coffee i.e., ETFS Coffee and BII Railway go up and down completely randomly.

Pair Corralation between ETFS Coffee and BII Railway

Assuming the 90 days trading horizon ETFS Coffee ETC is expected to generate 0.73 times more return on investment than BII Railway. However, ETFS Coffee ETC is 1.37 times less risky than BII Railway. It trades about 0.18 of its potential returns per unit of risk. BII Railway Transportation is currently generating about 0.07 per unit of risk. If you would invest  3,889  in ETFS Coffee ETC on September 17, 2024 and sell it today you would earn a total of  1,230  from holding ETFS Coffee ETC or generate 31.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.92%
Values	Daily Returns

ETFS Coffee ETC  vs.  BII Railway Transportation

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.

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.

Pair Trading with ETFS Coffee and BII Railway

The main advantage of trading using opposite ETFS Coffee and BII Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ETFS Coffee 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 ETFS Coffee ETC 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.