Correlation Between Big Ridge and Rio2

Can any of the company-specific risk be diversified away by investing in both Big Ridge and Rio2 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 Big Ridge and Rio2 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Big Ridge Gold and Rio2 Limited, you can compare the effects of market volatilities on Big Ridge and Rio2 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 Big Ridge with a short position of Rio2. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big Ridge and Rio2.

Diversification Opportunities for Big Ridge and Rio2

-0.57

Correlation Coefficient

Big Ridge  Rio2

Excellent diversification

The 3 months correlation between Big and Rio2 is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Big Ridge Gold and Rio2 Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio2 Limited and Big Ridge 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 Big Ridge Gold are associated (or correlated) with Rio2. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rio2 Limited has no effect on the direction of Big Ridge i.e., Big Ridge and Rio2 go up and down completely randomly.

Pair Corralation between Big Ridge and Rio2

Assuming the 90 days horizon Big Ridge Gold is expected to under-perform the Rio2. In addition to that, Big Ridge is 2.17 times more volatile than Rio2 Limited. It trades about -0.03 of its total potential returns per unit of risk. Rio2 Limited is currently generating about 0.2 per unit of volatility. If you would invest  42.00  in Rio2 Limited on December 28, 2024 and sell it today you would earn a total of  20.00  from holding Rio2 Limited or generate 47.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Big Ridge Gold  vs.  Rio2 Limited

Big Ridge Gold

Risk-Adjusted Performance

Very Weak

Over the last 90 days Big Ridge Gold has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's essential indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Rio2 Limited

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rio2 Limited are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Rio2 reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Big Ridge and Rio2

The main advantage of trading using opposite Big Ridge and Rio2 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big Ridge position performs unexpectedly, Rio2 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 Rio2 will offset losses from the drop in Rio2's long position.

The idea behind Big Ridge Gold and Rio2 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 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.