Correlation Between Rio Tinto and Endo International

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

By analyzing existing cross correlation between Rio Tinto PLC and Endo International PLC, you can compare the effects of market volatilities on Rio Tinto and Endo International 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 Endo International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and Endo International.

Diversification Opportunities for Rio Tinto and Endo International

0.82

Correlation Coefficient

Rio Tinto  Endo International

Very poor diversification

The 3 months correlation between Rio and Endo is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto PLC and Endo International PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Endo International PLC 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 PLC are associated (or correlated) with Endo International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Endo International PLC has no effect on the direction of Rio Tinto i.e., Rio Tinto and Endo International go up and down completely randomly.

Pair Corralation between Rio Tinto and Endo International

Assuming the 90 days trading horizon Rio Tinto PLC is expected to generate 1.53 times more return on investment than Endo International. However, Rio Tinto is 1.53 times more volatile than Endo International PLC. It trades about -0.12 of its potential returns per unit of risk. Endo International PLC is currently generating about -0.23 per unit of risk. If you would invest  525,700  in Rio Tinto PLC on September 26, 2024 and sell it today you would lose (55,700) from holding Rio Tinto PLC or give up 10.6% of portfolio value over 90 days.

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

Rio Tinto PLC  vs.  Endo International PLC

Rio Tinto PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rio Tinto PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Endo International PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Endo International PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Rio Tinto and Endo International

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

The idea behind Rio Tinto PLC and Endo International PLC 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.