Correlation Between Enel Generacion and Rio Tinto

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

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

Diversification Opportunities for Enel Generacion and Rio Tinto

-0.34

Correlation Coefficient

Enel Generacion  Rio Tinto

Very good diversification

The 3 months correlation between Enel and Rio is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Enel Generacion Costanera 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 Enel Generacion 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 Enel Generacion Costanera 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 Enel Generacion i.e., Enel Generacion and Rio Tinto go up and down completely randomly.

Pair Corralation between Enel Generacion and Rio Tinto

Assuming the 90 days trading horizon Enel Generacion Costanera is expected to generate 3.87 times more return on investment than Rio Tinto. However, Enel Generacion is 3.87 times more volatile than Rio Tinto PLC. It trades about 0.29 of its potential returns per unit of risk. Rio Tinto PLC is currently generating about 0.15 per unit of risk. If you would invest  47,250  in Enel Generacion Costanera on October 27, 2024 and sell it today you would earn a total of  13,050  from holding Enel Generacion Costanera or generate 27.62% return on investment over 90 days.

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

Enel Generacion Costanera  vs.  Rio Tinto PLC

Enel Generacion Costanera

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Enel Generacion Costanera are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Enel Generacion sustained 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 somewhat strong basic indicators, Rio Tinto is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Enel Generacion and Rio Tinto

The main advantage of trading using opposite Enel Generacion and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Enel Generacion 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 Enel Generacion Costanera 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.