Correlation Between Central Asia and Rio Tinto

Can any of the company-specific risk be diversified away by investing in both Central Asia 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 Central Asia and Rio Tinto into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Central Asia Metals and Rio Tinto PLC, you can compare the effects of market volatilities on Central Asia 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 Central Asia with a short position of Rio Tinto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Central Asia and Rio Tinto.

Diversification Opportunities for Central Asia and Rio Tinto

0.76

Correlation Coefficient

Central Asia  Rio Tinto

Poor diversification

The 3 months correlation between Central and Rio is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Central Asia Metals and Rio Tinto PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto PLC and Central Asia 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 Central Asia Metals 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 PLC has no effect on the direction of Central Asia i.e., Central Asia and Rio Tinto go up and down completely randomly.

Pair Corralation between Central Asia and Rio Tinto

Assuming the 90 days trading horizon Central Asia Metals is expected to under-perform the Rio Tinto. But the stock apears to be less risky and, when comparing its historical volatility, Central Asia Metals is 1.08 times less risky than Rio Tinto. The stock trades about -0.19 of its potential returns per unit of risk. The Rio Tinto PLC is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  482,950  in Rio Tinto PLC on September 22, 2024 and sell it today you would lose (16,150) from holding Rio Tinto PLC or give up 3.34% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.48%
Values	Daily Returns

Central Asia Metals  vs.  Rio Tinto PLC

Central Asia Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Central Asia Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Rio Tinto PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rio Tinto PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Rio Tinto is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Central Asia and Rio Tinto

The main advantage of trading using opposite Central Asia and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Central Asia 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 Central Asia Metals and Rio Tinto PLC 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.