Correlation Between Centrex Metals and Rio Tinto

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

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

Diversification Opportunities for Centrex Metals and Rio Tinto

0.22

Correlation Coefficient

Centrex Metals  Rio Tinto

Modest diversification

The 3 months correlation between Centrex and Rio is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Centrex Metals and Rio Tinto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto and Centrex Metals 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 Centrex Metals 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 Centrex Metals i.e., Centrex Metals and Rio Tinto go up and down completely randomly.

Pair Corralation between Centrex Metals and Rio Tinto

Assuming the 90 days trading horizon Centrex Metals is expected to under-perform the Rio Tinto. In addition to that, Centrex Metals is 2.32 times more volatile than Rio Tinto. It trades about -0.15 of its total potential returns per unit of risk. Rio Tinto is currently generating about -0.09 per unit of volatility. If you would invest  12,078  in Rio Tinto on October 6, 2024 and sell it today you would lose (331.00) from holding Rio Tinto or give up 2.74% of portfolio value over 90 days.

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

Centrex Metals  vs.  Rio Tinto

Centrex Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Centrex Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's primary indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm 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 newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Centrex Metals and Rio Tinto

The main advantage of trading using opposite Centrex Metals and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Centrex Metals 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 Centrex Metals 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.