Correlation Between Premier Investments and Rio Tinto

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

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

Diversification Opportunities for Premier Investments and Rio Tinto

-0.34

Correlation Coefficient

Premier Investments  Rio Tinto

Very good diversification

The 3 months correlation between Premier and Rio is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Premier Investments and Rio Tinto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto and Premier Investments 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 Premier Investments 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 Premier Investments i.e., Premier Investments and Rio Tinto go up and down completely randomly.

Pair Corralation between Premier Investments and Rio Tinto

Assuming the 90 days trading horizon Premier Investments is expected to generate 1.28 times more return on investment than Rio Tinto. However, Premier Investments is 1.28 times more volatile than Rio Tinto. It trades about 0.08 of its potential returns per unit of risk. Rio Tinto is currently generating about -0.11 per unit of risk. If you would invest  3,021  in Premier Investments on September 28, 2024 and sell it today you would earn a total of  234.00  from holding Premier Investments or generate 7.75% return on investment over 90 days.

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

Premier Investments  vs.  Rio Tinto

Premier Investments

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Premier Investments are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Premier Investments may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 Premier Investments and Rio Tinto

The main advantage of trading using opposite Premier Investments and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Premier Investments 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 Premier Investments 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.