Correlation Between Bitcoin and Rio Tinto

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

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

Diversification Opportunities for Bitcoin and Rio Tinto

-0.93

Correlation Coefficient

Bitcoin  Rio Tinto

Pay attention - limited upside

The 3 months correlation between Bitcoin and Rio is -0.93. Overlapping area represents the amount of risk that can be diversified away by holding Bitcoin 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 Bitcoin 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 Bitcoin 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 Bitcoin i.e., Bitcoin and Rio Tinto go up and down completely randomly.

Pair Corralation between Bitcoin and Rio Tinto

Assuming the 90 days trading horizon Bitcoin is expected to under-perform the Rio Tinto. In addition to that, Bitcoin is 1.73 times more volatile than Rio Tinto PLC. It trades about -0.14 of its total potential returns per unit of risk. Rio Tinto PLC is currently generating about 0.07 per unit of volatility. If you would invest  869,000  in Rio Tinto PLC on October 12, 2024 and sell it today you would earn a total of  15,000  from holding Rio Tinto PLC or generate 1.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	90.48%
Values	Daily Returns

Bitcoin  vs.  Rio Tinto PLC

Bitcoin

Risk-Adjusted Performance

13 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bitcoin are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Bitcoin exhibited solid returns over the last few months and may actually be approaching a breakup point.

Rio Tinto PLC

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Bitcoin and Rio Tinto

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

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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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.