Correlation Between Promotora and Rio Tinto

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

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

Diversification Opportunities for Promotora and Rio Tinto

-0.28

Correlation Coefficient

Promotora  Rio Tinto

Very good diversification

The 3 months correlation between Promotora and Rio is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Promotora y Operadora 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 Promotora 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 Promotora y Operadora 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 Promotora i.e., Promotora and Rio Tinto go up and down completely randomly.

Pair Corralation between Promotora and Rio Tinto

Assuming the 90 days trading horizon Promotora y Operadora is expected to generate 0.71 times more return on investment than Rio Tinto. However, Promotora y Operadora is 1.4 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 -0.12 per unit of risk. If you would invest  11,723  in Promotora y Operadora on September 27, 2024 and sell it today you would earn a total of  3,276  from holding Promotora y Operadora or generate 27.95% return on investment over 90 days.

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

Promotora y Operadora  vs.  Rio Tinto Group

Promotora y Operadora

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Promotora y Operadora are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Promotora disclosed 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 Promotora and Rio Tinto

The main advantage of trading using opposite Promotora and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Promotora 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 Promotora y Operadora 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.