Correlation Between Energy Technologies and Rio Tinto

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

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

Diversification Opportunities for Energy Technologies and Rio Tinto

0.34

Correlation Coefficient

Energy Technologies  Rio Tinto

Weak diversification

The 3 months correlation between Energy and Rio is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Energy Technologies Limited and Rio Tinto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto and Energy Technologies 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 Energy Technologies Limited 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 Energy Technologies i.e., Energy Technologies and Rio Tinto go up and down completely randomly.

Pair Corralation between Energy Technologies and Rio Tinto

Assuming the 90 days trading horizon Energy Technologies Limited is expected to generate 1.09 times more return on investment than Rio Tinto. However, Energy Technologies is 1.09 times more volatile than Rio Tinto. It trades about 0.06 of its potential returns per unit of risk. Rio Tinto is currently generating about -0.01 per unit of risk. If you would invest  3.00  in Energy Technologies Limited on September 22, 2024 and sell it today you would earn a total of  0.10  from holding Energy Technologies Limited or generate 3.33% return on investment over 90 days.

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

Energy Technologies Limited  vs.  Rio Tinto

Energy Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Energy Technologies Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Rio Tinto

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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 Energy Technologies and Rio Tinto

The main advantage of trading using opposite Energy Technologies and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Technologies 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 Energy Technologies Limited 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.

Check out your portfolio center.

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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.