Correlation Between Charter Hall and Rio Tinto

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

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

Diversification Opportunities for Charter Hall and Rio Tinto

-0.06

Correlation Coefficient

Charter Hall  Rio Tinto

Good diversification

The 3 months correlation between Charter and Rio is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Charter Hall Retail and Rio Tinto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto and Charter Hall 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 Charter Hall Retail 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 has no effect on the direction of Charter Hall i.e., Charter Hall and Rio Tinto go up and down completely randomly.

Pair Corralation between Charter Hall and Rio Tinto

Assuming the 90 days trading horizon Charter Hall Retail is expected to under-perform the Rio Tinto. But the stock apears to be less risky and, when comparing its historical volatility, Charter Hall Retail is 1.35 times less risky than Rio Tinto. The stock trades about -0.05 of its potential returns per unit of risk. The Rio Tinto is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  11,942  in Rio Tinto on October 6, 2024 and sell it today you would lose (195.00) from holding Rio Tinto or give up 1.63% of portfolio value over 90 days.

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

Charter Hall Retail  vs.  Rio Tinto

Charter Hall Retail

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Charter Hall Retail has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Charter Hall is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Rio Tinto

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rio Tinto has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Rio Tinto is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Charter Hall and Rio Tinto

The main advantage of trading using opposite Charter Hall and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Charter Hall 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 Charter Hall Retail and Rio Tinto 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.