Correlation Between Givaudan and Rio Tinto

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

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

Diversification Opportunities for Givaudan and Rio Tinto

0.62

Correlation Coefficient

Givaudan  Rio Tinto

Poor diversification

The 3 months correlation between Givaudan and Rio is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Givaudan SA 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 Givaudan 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 Givaudan SA 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 Givaudan i.e., Givaudan and Rio Tinto go up and down completely randomly.

Pair Corralation between Givaudan and Rio Tinto

Assuming the 90 days trading horizon Givaudan SA is expected to generate 0.77 times more return on investment than Rio Tinto. However, Givaudan SA is 1.3 times less risky than Rio Tinto. It trades about 0.0 of its potential returns per unit of risk. Rio Tinto PLC is currently generating about -0.2 per unit of risk. If you would invest  393,000  in Givaudan SA on September 23, 2024 and sell it today you would lose (500.00) from holding Givaudan SA or give up 0.13% of portfolio value over 90 days.

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

Givaudan SA  vs.  Rio Tinto PLC

Givaudan SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Givaudan SA 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.

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.

Pair Trading with Givaudan and Rio Tinto

The main advantage of trading using opposite Givaudan and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Givaudan 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 Givaudan SA 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.