Correlation Between Adriatic Metals and Rio Tinto

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

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

Diversification Opportunities for Adriatic Metals and Rio Tinto

0.21

Correlation Coefficient

Adriatic Metals  Rio Tinto

Modest diversification

The 3 months correlation between Adriatic and Rio is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Adriatic Metals PLC and Rio Tinto Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto Group and Adriatic Metals 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 Adriatic Metals PLC 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 Group has no effect on the direction of Adriatic Metals i.e., Adriatic Metals and Rio Tinto go up and down completely randomly.

Pair Corralation between Adriatic Metals and Rio Tinto

Assuming the 90 days horizon Adriatic Metals PLC is expected to generate 1.38 times more return on investment than Rio Tinto. However, Adriatic Metals is 1.38 times more volatile than Rio Tinto Group. It trades about 0.13 of its potential returns per unit of risk. Rio Tinto Group is currently generating about 0.03 per unit of risk. If you would invest  200.00  in Adriatic Metals PLC on September 3, 2024 and sell it today you would earn a total of  63.00  from holding Adriatic Metals PLC or generate 31.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Adriatic Metals PLC  vs.  Rio Tinto Group

Adriatic Metals PLC

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Adriatic Metals PLC are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Adriatic Metals reported solid returns over the last few months and may actually be approaching a breakup point.

Rio Tinto Group

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Rio Tinto is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Adriatic Metals and Rio Tinto

The main advantage of trading using opposite Adriatic Metals and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Adriatic Metals 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 Adriatic Metals PLC and Rio Tinto Group 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.