Correlation Between Rio Tinto and DevEx Resources

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

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

Diversification Opportunities for Rio Tinto and DevEx Resources

0.47

Correlation Coefficient

Rio Tinto  DevEx Resources

Very weak diversification

The 3 months correlation between Rio and DevEx is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto Group and DevEx Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DevEx Resources and Rio Tinto 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 Rio Tinto Group are associated (or correlated) with DevEx Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DevEx Resources has no effect on the direction of Rio Tinto i.e., Rio Tinto and DevEx Resources go up and down completely randomly.

Pair Corralation between Rio Tinto and DevEx Resources

Assuming the 90 days trading horizon Rio Tinto Group is expected to generate 0.17 times more return on investment than DevEx Resources. However, Rio Tinto Group is 5.86 times less risky than DevEx Resources. It trades about -0.15 of its potential returns per unit of risk. DevEx Resources Limited is currently generating about -0.26 per unit of risk. If you would invest  7,264  in Rio Tinto Group on September 23, 2024 and sell it today you would lose (323.00) from holding Rio Tinto Group or give up 4.45% of portfolio value over 90 days.

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

Rio Tinto Group  vs.  DevEx Resources Limited

Rio Tinto Group

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Rio Tinto is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

DevEx Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DevEx Resources Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Rio Tinto and DevEx Resources

The main advantage of trading using opposite Rio Tinto and DevEx Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rio Tinto position performs unexpectedly, DevEx Resources 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 DevEx Resources will offset losses from the drop in DevEx Resources' long position.

The idea behind Rio Tinto Group and DevEx Resources Limited 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.