Correlation Between Disney and Rio Tinto

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

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

Diversification Opportunities for Disney and Rio Tinto

-0.37

Correlation Coefficient

Disney  Rio Tinto

Very good diversification

The 3 months correlation between Disney and Rio is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding The Walt Disney 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 Disney 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 The Walt Disney 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 Disney i.e., Disney and Rio Tinto go up and down completely randomly.

Pair Corralation between Disney and Rio Tinto

Assuming the 90 days trading horizon The Walt Disney is expected to generate 0.42 times more return on investment than Rio Tinto. However, The Walt Disney is 2.37 times less risky than Rio Tinto. It trades about -0.29 of its potential returns per unit of risk. Rio Tinto Group is currently generating about -0.18 per unit of risk. If you would invest  238,184  in The Walt Disney on September 27, 2024 and sell it today you would lose (11,184) from holding The Walt Disney or give up 4.7% of portfolio value over 90 days.

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

The Walt Disney  vs.  Rio Tinto Group

Walt Disney

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Walt Disney are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Disney showed solid returns over the last few months and may actually be approaching a breakup point.

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 Disney and Rio Tinto

The main advantage of trading using opposite Disney and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Disney 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 The Walt Disney 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.

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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.