Correlation Between Liontown Resources and Rio Tinto

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

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

Diversification Opportunities for Liontown Resources and Rio Tinto

0.33

Correlation Coefficient

Liontown Resources  Rio Tinto

Weak diversification

The 3 months correlation between Liontown and Rio is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Liontown Resources Limited 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 Liontown Resources 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 Liontown Resources Limited 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 Liontown Resources i.e., Liontown Resources and Rio Tinto go up and down completely randomly.

Pair Corralation between Liontown Resources and Rio Tinto

Assuming the 90 days horizon Liontown Resources Limited is expected to generate 7.67 times more return on investment than Rio Tinto. However, Liontown Resources is 7.67 times more volatile than Rio Tinto Group. It trades about 0.02 of its potential returns per unit of risk. Rio Tinto Group is currently generating about 0.02 per unit of risk. If you would invest  39.00  in Liontown Resources Limited on September 22, 2024 and sell it today you would lose (9.00) from holding Liontown Resources Limited or give up 23.08% of portfolio value over 90 days.

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

Liontown Resources Limited  vs.  Rio Tinto Group

Liontown Resources

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Liontown Resources Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Liontown Resources may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Rio Tinto Group

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Rio Tinto is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Liontown Resources and Rio Tinto

The main advantage of trading using opposite Liontown Resources and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Liontown Resources 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 Liontown Resources Limited 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.