Correlation Between Faraday Copper and Rio2

Can any of the company-specific risk be diversified away by investing in both Faraday Copper and Rio2 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 Faraday Copper and Rio2 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Faraday Copper Corp and Rio2, you can compare the effects of market volatilities on Faraday Copper and Rio2 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 Faraday Copper with a short position of Rio2. Check out your portfolio center. Please also check ongoing floating volatility patterns of Faraday Copper and Rio2.

Diversification Opportunities for Faraday Copper and Rio2

0.67

Correlation Coefficient

Faraday Copper  Rio2

Poor diversification

The 3 months correlation between Faraday and Rio2 is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Faraday Copper Corp and Rio2 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio2 and Faraday Copper 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 Faraday Copper Corp are associated (or correlated) with Rio2. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rio2 has no effect on the direction of Faraday Copper i.e., Faraday Copper and Rio2 go up and down completely randomly.

Pair Corralation between Faraday Copper and Rio2

Assuming the 90 days trading horizon Faraday Copper Corp is expected to under-perform the Rio2. But the stock apears to be less risky and, when comparing its historical volatility, Faraday Copper Corp is 1.47 times less risky than Rio2. The stock trades about -0.16 of its potential returns per unit of risk. The Rio2 is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  62.00  in Rio2 on October 9, 2024 and sell it today you would lose (1.00) from holding Rio2 or give up 1.61% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.74%
Values	Daily Returns

Faraday Copper Corp  vs.  Rio2

Faraday Copper Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Faraday Copper Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic 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.

Rio2

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rio2 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Rio2 is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Faraday Copper and Rio2

The main advantage of trading using opposite Faraday Copper and Rio2 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Faraday Copper position performs unexpectedly, Rio2 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 Rio2 will offset losses from the drop in Rio2's long position.

The idea behind Faraday Copper Corp and Rio2 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.