Correlation Between Cleveland Cliffs and Rio Tinto

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

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

Diversification Opportunities for Cleveland Cliffs and Rio Tinto

0.48

Correlation Coefficient

Cleveland Cliffs  Rio Tinto

Very weak diversification

The 3 months correlation between Cleveland and Rio is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Cleveland Cliffs and Rio Tinto Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto Group and Cleveland Cliffs 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 Cleveland Cliffs 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 Group has no effect on the direction of Cleveland Cliffs i.e., Cleveland Cliffs and Rio Tinto go up and down completely randomly.

Pair Corralation between Cleveland Cliffs and Rio Tinto

Assuming the 90 days trading horizon Cleveland Cliffs is expected to under-perform the Rio Tinto. In addition to that, Cleveland Cliffs is 1.65 times more volatile than Rio Tinto Group. It trades about -0.42 of its total potential returns per unit of risk. Rio Tinto Group is currently generating about -0.1 per unit of volatility. If you would invest  124,515  in Rio Tinto Group on September 26, 2024 and sell it today you would lose (5,515) from holding Rio Tinto Group or give up 4.43% of portfolio value over 90 days.

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

Cleveland Cliffs  vs.  Rio Tinto Group

Cleveland Cliffs

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cleveland Cliffs has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Rio Tinto Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rio Tinto Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Cleveland Cliffs and Rio Tinto

The main advantage of trading using opposite Cleveland Cliffs and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cleveland Cliffs 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 Cleveland Cliffs and Rio Tinto Group 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.