Correlation Between Rio Tinto and StrikePoint Gold

Can any of the company-specific risk be diversified away by investing in both Rio Tinto and StrikePoint Gold 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 StrikePoint Gold 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 StrikePoint Gold, you can compare the effects of market volatilities on Rio Tinto and StrikePoint Gold 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 StrikePoint Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and StrikePoint Gold.

Diversification Opportunities for Rio Tinto and StrikePoint Gold

0.27

Correlation Coefficient

Rio Tinto  StrikePoint Gold

Modest diversification

The 3 months correlation between Rio and StrikePoint is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto Group and StrikePoint Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on StrikePoint Gold 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 StrikePoint Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of StrikePoint Gold has no effect on the direction of Rio Tinto i.e., Rio Tinto and StrikePoint Gold go up and down completely randomly.

Pair Corralation between Rio Tinto and StrikePoint Gold

Assuming the 90 days trading horizon Rio Tinto Group is expected to generate 0.25 times more return on investment than StrikePoint Gold. However, Rio Tinto Group is 4.03 times less risky than StrikePoint Gold. It trades about -0.12 of its potential returns per unit of risk. StrikePoint Gold is currently generating about -0.58 per unit of risk. If you would invest  7,262  in Rio Tinto Group on October 15, 2024 and sell it today you would lose (150.00) from holding Rio Tinto Group or give up 2.07% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	18.75%
Values	Daily Returns

Rio Tinto Group  vs.  StrikePoint Gold

Rio Tinto Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rio Tinto Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Rio Tinto is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

StrikePoint Gold

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days StrikePoint Gold 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 February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Rio Tinto and StrikePoint Gold

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

The idea behind Rio Tinto Group and StrikePoint Gold 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.