Correlation Between Rio Tinto and WOLFDEN RES

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

Diversification Opportunities for Rio Tinto and WOLFDEN RES

-0.31

Correlation Coefficient

Rio Tinto  WOLFDEN RES

Very good diversification

The 3 months correlation between Rio and WOLFDEN is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto Group and WOLFDEN RES P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WOLFDEN RES P 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 WOLFDEN RES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WOLFDEN RES P has no effect on the direction of Rio Tinto i.e., Rio Tinto and WOLFDEN RES go up and down completely randomly.

Pair Corralation between Rio Tinto and WOLFDEN RES

Assuming the 90 days trading horizon Rio Tinto Group is expected to under-perform the WOLFDEN RES. But the stock apears to be less risky and, when comparing its historical volatility, Rio Tinto Group is 22.75 times less risky than WOLFDEN RES. The stock trades about -0.15 of its potential returns per unit of risk. The WOLFDEN RES P is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3.45  in WOLFDEN RES P on September 23, 2024 and sell it today you would lose (0.85) from holding WOLFDEN RES P or give up 24.64% of portfolio value over 90 days.

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

Rio Tinto Group  vs.  WOLFDEN RES P

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.

WOLFDEN RES P

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WOLFDEN RES P are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, WOLFDEN RES reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rio Tinto and WOLFDEN RES

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

The idea behind Rio Tinto Group and WOLFDEN RES P 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.