Correlation Between Rio Tinto and Trellus Health

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

Diversification Opportunities for Rio Tinto and Trellus Health

0.63

Correlation Coefficient

Rio Tinto  Trellus Health

Poor diversification

The 3 months correlation between Rio and Trellus is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto PLC and Trellus Health plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trellus Health 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 Trellus Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trellus Health plc has no effect on the direction of Rio Tinto i.e., Rio Tinto and Trellus Health go up and down completely randomly.

Pair Corralation between Rio Tinto and Trellus Health

Assuming the 90 days trading horizon Rio Tinto PLC is expected to generate 0.36 times more return on investment than Trellus Health. However, Rio Tinto PLC is 2.76 times less risky than Trellus Health. It trades about -0.13 of its potential returns per unit of risk. Trellus Health plc is currently generating about -0.2 per unit of risk. If you would invest  529,900  in Rio Tinto PLC on September 28, 2024 and sell it today you would lose (59,900) from holding Rio Tinto PLC or give up 11.3% of portfolio value over 90 days.

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

Rio Tinto PLC  vs.  Trellus Health 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.

Trellus Health plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Trellus Health 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 Trellus Health

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

The idea behind Rio Tinto PLC and Trellus Health 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.