Correlation Between Compass Minerals and Rio Tinto

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

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

Diversification Opportunities for Compass Minerals and Rio Tinto

-0.34

Correlation Coefficient

Compass Minerals  Rio Tinto

Very good diversification

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

Pair Corralation between Compass Minerals and Rio Tinto

Considering the 90-day investment horizon Compass Minerals International is expected to under-perform the Rio Tinto. In addition to that, Compass Minerals is 2.17 times more volatile than Rio Tinto ADR. It trades about -0.06 of its total potential returns per unit of risk. Rio Tinto ADR is currently generating about 0.0 per unit of volatility. If you would invest  6,244  in Rio Tinto ADR on September 21, 2024 and sell it today you would lose (371.00) from holding Rio Tinto ADR or give up 5.94% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Compass Minerals International  vs.  Rio Tinto ADR

Compass Minerals Int

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Compass Minerals International are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady primary indicators, Compass Minerals may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 latest unsteady performance, the Stock's forward indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Compass Minerals and Rio Tinto

The main advantage of trading using opposite Compass Minerals and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Compass Minerals 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 Compass Minerals International 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.