Correlation Between Rio Tinto and Macquarie Group

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

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

Diversification Opportunities for Rio Tinto and Macquarie Group

0.19

Correlation Coefficient

Rio Tinto  Macquarie Group

Average diversification

The 3 months correlation between Rio and Macquarie is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto and Macquarie Group Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Macquarie Group and Rio Tinto 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 Rio Tinto are associated (or correlated) with Macquarie Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Macquarie Group has no effect on the direction of Rio Tinto i.e., Rio Tinto and Macquarie Group go up and down completely randomly.

Pair Corralation between Rio Tinto and Macquarie Group

Assuming the 90 days trading horizon Rio Tinto is expected to generate 3.03 times more return on investment than Macquarie Group. However, Rio Tinto is 3.03 times more volatile than Macquarie Group Ltd. It trades about 0.08 of its potential returns per unit of risk. Macquarie Group Ltd is currently generating about 0.09 per unit of risk. If you would invest  10,994  in Rio Tinto on September 2, 2024 and sell it today you would earn a total of  830.00  from holding Rio Tinto or generate 7.55% return on investment over 90 days.

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

Rio Tinto  vs.  Macquarie Group Ltd

Rio Tinto

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Rio Tinto may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Macquarie Group

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Macquarie Group Ltd are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Macquarie Group is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Rio Tinto and Macquarie Group

The main advantage of trading using opposite Rio Tinto and Macquarie Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rio Tinto position performs unexpectedly, Macquarie Group 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 Macquarie Group will offset losses from the drop in Macquarie Group's long position.

The idea behind Rio Tinto and Macquarie Group Ltd 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.