Correlation Between Australia and Rio Tinto

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Can any of the company-specific risk be diversified away by investing in both Australia and Rio Tinto 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 Australia and Rio Tinto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Australia and New and Rio Tinto, you can compare the effects of market volatilities on Australia and Rio Tinto 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 Australia with a short position of Rio Tinto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Australia and Rio Tinto.

Diversification Opportunities for Australia and Rio Tinto

-0.28
  Correlation Coefficient

Very good diversification

The 3 months correlation between Australia and Rio is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Australia and New and Rio Tinto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto and Australia 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 Australia and New are associated (or correlated) with Rio Tinto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rio Tinto has no effect on the direction of Australia i.e., Australia and Rio Tinto go up and down completely randomly.

Pair Corralation between Australia and Rio Tinto

Assuming the 90 days trading horizon Australia is expected to generate 4.49 times less return on investment than Rio Tinto. But when comparing it to its historical volatility, Australia and New is 1.53 times less risky than Rio Tinto. It trades about 0.04 of its potential returns per unit of risk. Rio Tinto is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  10,709  in Rio Tinto on September 5, 2024 and sell it today you would earn a total of  1,299  from holding Rio Tinto or generate 12.13% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Australia and New  vs.  Rio Tinto

 Performance 
       Timeline  
Australia and New 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Australia and New are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Australia is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.
Rio Tinto 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Rio Tinto may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Australia and Rio Tinto Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Australia and Rio Tinto

The main advantage of trading using opposite Australia and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Australia position performs unexpectedly, Rio Tinto 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 Rio Tinto will offset losses from the drop in Rio Tinto's long position.
The idea behind Australia and New and Rio Tinto 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.
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.

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