Correlation Between Magellan Financial and Rio Tinto

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

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

Diversification Opportunities for Magellan Financial and Rio Tinto

-0.26

Correlation Coefficient

Magellan Financial  Rio Tinto

Very good diversification

The 3 months correlation between Magellan and Rio is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Magellan Financial Group and Rio Tinto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto and Magellan Financial 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 Magellan Financial Group 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 Magellan Financial i.e., Magellan Financial and Rio Tinto go up and down completely randomly.

Pair Corralation between Magellan Financial and Rio Tinto

Assuming the 90 days trading horizon Magellan Financial Group is expected to generate 1.86 times more return on investment than Rio Tinto. However, Magellan Financial is 1.86 times more volatile than Rio Tinto. It trades about 0.07 of its potential returns per unit of risk. Rio Tinto is currently generating about -0.02 per unit of risk. If you would invest  1,080  in Magellan Financial Group on September 27, 2024 and sell it today you would earn a total of  34.00  from holding Magellan Financial Group or generate 3.15% return on investment over 90 days.

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

Magellan Financial Group  vs.  Rio Tinto

Magellan Financial

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Magellan Financial Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Magellan Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Rio Tinto

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rio Tinto has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Magellan Financial and Rio Tinto

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

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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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.