Correlation Between BII Railway and American Electric
Can any of the company-specific risk be diversified away by investing in both BII Railway and American Electric 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 American Electric 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 American Electric Power, you can compare the effects of market volatilities on BII Railway and American Electric 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 American Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of BII Railway and American Electric.
Diversification Opportunities for BII Railway and American Electric
-0.36 | Correlation Coefficient |
Very good diversification
The 3 months correlation between BII and American is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding BII Railway Transportation and American Electric Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Electric Power 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 American Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Electric Power has no effect on the direction of BII Railway i.e., BII Railway and American Electric go up and down completely randomly.
Pair Corralation between BII Railway and American Electric
Assuming the 90 days horizon BII Railway is expected to generate 1.34 times less return on investment than American Electric. In addition to that, BII Railway is 2.91 times more volatile than American Electric Power. It trades about 0.01 of its total potential returns per unit of risk. American Electric Power is currently generating about 0.02 per unit of volatility. If you would invest 8,209 in American Electric Power on September 12, 2024 and sell it today you would earn a total of 791.00 from holding American Electric Power or generate 9.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.8% |
| Values | Daily Returns |
BII Railway Transportation vs. American Electric Power
Performance |
| Timeline |
| BII Railway Transpor |
| American Electric Power |
BII Railway and American Electric Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BII Railway and American Electric
The main advantage of trading using opposite BII Railway and American Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BII Railway position performs unexpectedly, American Electric 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 American Electric will offset losses from the drop in American Electric's long position.| BII Railway vs. Cognizant Technology Solutions | BII Railway vs. Superior Plus Corp | BII Railway vs. SIVERS SEMICONDUCTORS AB | BII Railway vs. Norsk Hydro ASA |
| American Electric vs. Zurich Insurance Group | American Electric vs. Gaztransport Technigaz SA | American Electric vs. BII Railway Transportation | American Electric vs. Goosehead Insurance |
Check out your portfolio center.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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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