Correlation Between Erdene Resource and Rio Tinto

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

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

Diversification Opportunities for Erdene Resource and Rio Tinto

0.79

Correlation Coefficient

Erdene Resource  Rio Tinto

Poor diversification

The 3 months correlation between Erdene and Rio is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Erdene Resource Development and Rio Tinto ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto ADR and Erdene Resource 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 Erdene Resource Development 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 ADR has no effect on the direction of Erdene Resource i.e., Erdene Resource and Rio Tinto go up and down completely randomly.

Pair Corralation between Erdene Resource and Rio Tinto

Assuming the 90 days horizon Erdene Resource Development is expected to under-perform the Rio Tinto. In addition to that, Erdene Resource is 2.59 times more volatile than Rio Tinto ADR. It trades about -0.1 of its total potential returns per unit of risk. Rio Tinto ADR is currently generating about -0.17 per unit of volatility. If you would invest  6,970  in Rio Tinto ADR on October 4, 2024 and sell it today you would lose (1,093) from holding Rio Tinto ADR or give up 15.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Erdene Resource Development  vs.  Rio Tinto ADR

Erdene Resource Deve

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Erdene Resource Development has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Rio Tinto ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rio Tinto ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Erdene Resource and Rio Tinto

The main advantage of trading using opposite Erdene Resource and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Erdene Resource 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 Erdene Resource Development and Rio Tinto ADR 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 CEOs Directory module to screen CEOs from public companies around the world.