Correlation Between Rock Tech and BII Railway

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

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

Diversification Opportunities for Rock Tech and BII Railway

0.38

Correlation Coefficient

Rock Tech  BII Railway

Weak diversification

The 3 months correlation between Rock and BII is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Rock Tech Lithium 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 Rock Tech 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 Rock Tech Lithium 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 Rock Tech i.e., Rock Tech and BII Railway go up and down completely randomly.

Pair Corralation between Rock Tech and BII Railway

Assuming the 90 days trading horizon Rock Tech is expected to generate 1.78 times less return on investment than BII Railway. In addition to that, Rock Tech is 5.01 times more volatile than BII Railway Transportation. It trades about 0.04 of its total potential returns per unit of risk. BII Railway Transportation is currently generating about 0.32 per unit of volatility. If you would invest  2.55  in BII Railway Transportation on September 28, 2024 and sell it today you would earn a total of  0.25  from holding BII Railway Transportation or generate 9.8% return on investment over 90 days.

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

Rock Tech Lithium  vs.  BII Railway Transportation

Rock Tech Lithium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rock Tech Lithium has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, Rock Tech is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

BII Railway Transpor

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days BII Railway Transportation has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Rock Tech and BII Railway

The main advantage of trading using opposite Rock Tech and BII Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rock Tech 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 Rock Tech Lithium 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..