Correlation Between Alfa Financial and Rio Tinto

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

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

Diversification Opportunities for Alfa Financial and Rio Tinto

0.0

Correlation Coefficient

Alfa Financial  Rio Tinto

Pay attention - limited upside

The 3 months correlation between Alfa and Rio is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Alfa Financial Software 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 Alfa Financial 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 Alfa Financial Software 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 Alfa Financial i.e., Alfa Financial and Rio Tinto go up and down completely randomly.

Pair Corralation between Alfa Financial and Rio Tinto

Assuming the 90 days trading horizon Alfa Financial Software is expected to under-perform the Rio Tinto. In addition to that, Alfa Financial is 1.4 times more volatile than Rio Tinto PLC. It trades about -0.04 of its total potential returns per unit of risk. Rio Tinto PLC is currently generating about 0.02 per unit of volatility. If you would invest  493,450  in Rio Tinto PLC on October 24, 2024 and sell it today you would earn a total of  6,650  from holding Rio Tinto PLC or generate 1.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Alfa Financial Software  vs.  Rio Tinto PLC

Alfa Financial Software

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alfa Financial Software has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Alfa Financial is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Rio Tinto PLC

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto PLC are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Rio Tinto is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Alfa Financial and Rio Tinto

The main advantage of trading using opposite Alfa Financial and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alfa Financial 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 Alfa Financial Software 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.

Check out your portfolio center.

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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.