Correlation Between Edinburgh Investment and Rio Tinto

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

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

Diversification Opportunities for Edinburgh Investment and Rio Tinto

0.12

Correlation Coefficient

Edinburgh Investment  Rio Tinto

Average diversification

The 3 months correlation between Edinburgh and Rio is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Edinburgh Investment Trust and Rio Tinto PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto PLC and Edinburgh Investment 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 Edinburgh Investment Trust 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 PLC has no effect on the direction of Edinburgh Investment i.e., Edinburgh Investment and Rio Tinto go up and down completely randomly.

Pair Corralation between Edinburgh Investment and Rio Tinto

Assuming the 90 days trading horizon Edinburgh Investment Trust is expected to generate 0.52 times more return on investment than Rio Tinto. However, Edinburgh Investment Trust is 1.93 times less risky than Rio Tinto. It trades about 0.08 of its potential returns per unit of risk. Rio Tinto PLC is currently generating about -0.02 per unit of risk. If you would invest  73,004  in Edinburgh Investment Trust on October 26, 2024 and sell it today you would earn a total of  2,496  from holding Edinburgh Investment Trust or generate 3.42% return on investment over 90 days.

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

Edinburgh Investment Trust  vs.  Rio Tinto PLC

Edinburgh Investment

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Edinburgh Investment Trust are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Edinburgh Investment is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Rio Tinto PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rio Tinto PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Rio Tinto is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Edinburgh Investment and Rio Tinto

The main advantage of trading using opposite Edinburgh Investment and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Edinburgh Investment 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 Edinburgh Investment Trust and Rio Tinto PLC 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.