Correlation Between Rio Tinto and Guaranty Trust

Can any of the company-specific risk be diversified away by investing in both Rio Tinto and Guaranty Trust 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 Guaranty Trust 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 Guaranty Trust Holding, you can compare the effects of market volatilities on Rio Tinto and Guaranty Trust 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 Guaranty Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and Guaranty Trust.

Diversification Opportunities for Rio Tinto and Guaranty Trust

-0.36

Correlation Coefficient

Rio Tinto  Guaranty Trust

Very good diversification

The 3 months correlation between Rio and Guaranty is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto PLC and Guaranty Trust Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guaranty Trust Holding 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 Guaranty Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guaranty Trust Holding has no effect on the direction of Rio Tinto i.e., Rio Tinto and Guaranty Trust go up and down completely randomly.

Pair Corralation between Rio Tinto and Guaranty Trust

Assuming the 90 days trading horizon Rio Tinto PLC is expected to under-perform the Guaranty Trust. But the stock apears to be less risky and, when comparing its historical volatility, Rio Tinto PLC is 1.29 times less risky than Guaranty Trust. The stock trades about 0.0 of its potential returns per unit of risk. The Guaranty Trust Holding is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  179.00  in Guaranty Trust Holding on September 20, 2024 and sell it today you would earn a total of  0.00  from holding Guaranty Trust Holding or generate 0.0% return on investment over 90 days.

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

Rio Tinto PLC  vs.  Guaranty Trust Holding

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 rather sound technical and fundamental indicators, Rio Tinto is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Guaranty Trust Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guaranty Trust Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Guaranty Trust is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Rio Tinto and Guaranty Trust

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

The idea behind Rio Tinto PLC and Guaranty Trust Holding 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.