Correlation Between Disney and Rio Tinto

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

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

Diversification Opportunities for Disney and Rio Tinto

-0.18

Correlation Coefficient

Disney  Rio Tinto

Good diversification

The 3 months correlation between Disney and Rio is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Rio Tinto Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto Group and Disney 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 Walt Disney 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 Group has no effect on the direction of Disney i.e., Disney and Rio Tinto go up and down completely randomly.

Pair Corralation between Disney and Rio Tinto

Considering the 90-day investment horizon Walt Disney is expected to generate 1.07 times more return on investment than Rio Tinto. However, Disney is 1.07 times more volatile than Rio Tinto Group. It trades about 0.51 of its potential returns per unit of risk. Rio Tinto Group is currently generating about -0.06 per unit of risk. If you would invest  9,620  in Walt Disney on September 1, 2024 and sell it today you would earn a total of  2,127  from holding Walt Disney or generate 22.11% return on investment over 90 days.

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

Walt Disney  vs.  Rio Tinto Group

Walt Disney

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating forward indicators, Disney unveiled solid returns over the last few months and may actually be approaching a breakup point.

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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Disney and Rio Tinto

The main advantage of trading using opposite Disney and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Disney 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 Walt Disney and Rio Tinto Group 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.