Correlation Between Alaska Air and Rio Tinto

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

By analyzing existing cross correlation between Alaska Air Group and Rio Tinto PLC, you can compare the effects of market volatilities on Alaska Air and Rio Tinto 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 Alaska Air with a short position of Rio Tinto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alaska Air and Rio Tinto.

Diversification Opportunities for Alaska Air and Rio Tinto

-0.69

Correlation Coefficient

Alaska Air  Rio Tinto

Excellent diversification

The 3 months correlation between Alaska and Rio is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Alaska Air Group and Rio Tinto PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto PLC and Alaska Air 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 Alaska Air Group are associated (or correlated) with Rio Tinto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rio Tinto PLC has no effect on the direction of Alaska Air i.e., Alaska Air and Rio Tinto go up and down completely randomly.

Pair Corralation between Alaska Air and Rio Tinto

Assuming the 90 days trading horizon Alaska Air Group is expected to generate 1.52 times more return on investment than Rio Tinto. However, Alaska Air is 1.52 times more volatile than Rio Tinto PLC. It trades about 0.03 of its potential returns per unit of risk. Rio Tinto PLC is currently generating about -0.01 per unit of risk. If you would invest  4,952  in Alaska Air Group on October 4, 2024 and sell it today you would earn a total of  1,508  from holding Alaska Air Group or generate 30.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Alaska Air Group  vs.  Rio Tinto PLC

Alaska Air Group

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alaska Air Group are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Alaska Air unveiled solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Alaska Air and Rio Tinto

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

The idea behind Alaska Air Group and Rio Tinto 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.