Correlation Between Rio Tinto and Sage Group

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

Diversification Opportunities for Rio Tinto and Sage Group

-0.4

Correlation Coefficient

Rio Tinto  Sage Group

Very good diversification

The 3 months correlation between Rio and Sage is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto PLC and Sage Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sage Group 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 Sage Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sage Group PLC has no effect on the direction of Rio Tinto i.e., Rio Tinto and Sage Group go up and down completely randomly.

Pair Corralation between Rio Tinto and Sage Group

Assuming the 90 days trading horizon Rio Tinto PLC is expected to under-perform the Sage Group. But the stock apears to be less risky and, when comparing its historical volatility, Rio Tinto PLC is 1.54 times less risky than Sage Group. The stock trades about -0.02 of its potential returns per unit of risk. The Sage Group PLC is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  101,850  in Sage Group PLC on September 23, 2024 and sell it today you would earn a total of  27,150  from holding Sage Group PLC or generate 26.66% return on investment over 90 days.

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

Rio Tinto PLC  vs.  Sage Group 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 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.

Sage Group PLC

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sage Group PLC are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Sage Group exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rio Tinto and Sage Group

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

The idea behind Rio Tinto PLC and Sage Group 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.

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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.