Correlation Between Benton Resources and Rio Tinto

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

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

Diversification Opportunities for Benton Resources and Rio Tinto

0.23

Correlation Coefficient

Benton Resources  Rio Tinto

Modest diversification

The 3 months correlation between Benton and Rio is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Benton Resources and Rio Tinto ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto ADR and Benton Resources 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 Benton Resources 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 ADR has no effect on the direction of Benton Resources i.e., Benton Resources and Rio Tinto go up and down completely randomly.

Pair Corralation between Benton Resources and Rio Tinto

Assuming the 90 days horizon Benton Resources is expected to generate 13.75 times more return on investment than Rio Tinto. However, Benton Resources is 13.75 times more volatile than Rio Tinto ADR. It trades about 0.08 of its potential returns per unit of risk. Rio Tinto ADR is currently generating about -0.01 per unit of risk. If you would invest  9.00  in Benton Resources on October 7, 2024 and sell it today you would lose (4.18) from holding Benton Resources or give up 46.44% of portfolio value over 90 days.

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

Benton Resources  vs.  Rio Tinto ADR

Benton Resources

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Benton Resources are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Benton Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Rio Tinto ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rio Tinto ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Benton Resources and Rio Tinto

The main advantage of trading using opposite Benton Resources and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Benton Resources 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 Benton Resources and Rio Tinto ADR 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.