Correlation Between Berkeley Energia and Rio Tinto

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

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

Diversification Opportunities for Berkeley Energia and Rio Tinto

0.13

Correlation Coefficient

Berkeley Energia  Rio Tinto

Average diversification

The 3 months correlation between Berkeley and Rio is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Berkeley Energia Limited 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 Berkeley Energia 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 Berkeley Energia Limited 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 Berkeley Energia i.e., Berkeley Energia and Rio Tinto go up and down completely randomly.

Pair Corralation between Berkeley Energia and Rio Tinto

Assuming the 90 days horizon Berkeley Energia Limited is expected to generate 3.33 times more return on investment than Rio Tinto. However, Berkeley Energia is 3.33 times more volatile than Rio Tinto Group. It trades about 0.03 of its potential returns per unit of risk. Rio Tinto Group is currently generating about 0.0 per unit of risk. If you would invest  18.00  in Berkeley Energia Limited on October 5, 2024 and sell it today you would lose (1.00) from holding Berkeley Energia Limited or give up 5.56% of portfolio value over 90 days.

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

Berkeley Energia Limited  vs.  Rio Tinto Group

Berkeley Energia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Berkeley Energia Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Berkeley Energia is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Rio Tinto Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rio Tinto Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Berkeley Energia and Rio Tinto

The main advantage of trading using opposite Berkeley Energia and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Berkeley Energia 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 Berkeley Energia Limited 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.