Correlation Between Rio Tinto and Berkeley Energia

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

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

Diversification Opportunities for Rio Tinto and Berkeley Energia

0.15

Correlation Coefficient

Rio Tinto  Berkeley Energia

Average diversification

The 3 months correlation between Rio and Berkeley is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto Group and Berkeley Energia Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Berkeley Energia 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 Group are associated (or correlated) with Berkeley Energia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Berkeley Energia has no effect on the direction of Rio Tinto i.e., Rio Tinto and Berkeley Energia go up and down completely randomly.

Pair Corralation between Rio Tinto and Berkeley Energia

Assuming the 90 days trading horizon Rio Tinto Group is expected to under-perform the Berkeley Energia. But the stock apears to be less risky and, when comparing its historical volatility, Rio Tinto Group is 3.35 times less risky than Berkeley Energia. The stock trades about -0.1 of its potential returns per unit of risk. The Berkeley Energia Limited is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  20.00  in Berkeley Energia Limited on September 26, 2024 and sell it today you would lose (1.00) from holding Berkeley Energia Limited or give up 5.0% of portfolio value over 90 days.

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

Rio Tinto Group  vs.  Berkeley Energia Limited

Rio Tinto Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rio Tinto Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Berkeley Energia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Berkeley Energia Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Berkeley Energia is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Rio Tinto and Berkeley Energia

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

The idea behind Rio Tinto Group and Berkeley Energia Limited 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.