Correlation Between Fortescue and Rio Tinto

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

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

Diversification Opportunities for Fortescue and Rio Tinto

-0.17

Correlation Coefficient

Fortescue  Rio Tinto

Good diversification

The 3 months correlation between Fortescue and Rio is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Fortescue and Rio Tinto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto and Fortescue 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 Fortescue 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 Fortescue i.e., Fortescue and Rio Tinto go up and down completely randomly.

Pair Corralation between Fortescue and Rio Tinto

Assuming the 90 days trading horizon Fortescue is expected to under-perform the Rio Tinto. In addition to that, Fortescue is 1.56 times more volatile than Rio Tinto. It trades about -0.08 of its total potential returns per unit of risk. Rio Tinto is currently generating about 0.08 per unit of volatility. If you would invest  11,432  in Rio Tinto on December 30, 2024 and sell it today you would earn a total of  694.00  from holding Rio Tinto or generate 6.07% return on investment over 90 days.

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

Fortescue  vs.  Rio Tinto

Fortescue

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fortescue has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental 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

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Rio Tinto may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Fortescue and Rio Tinto

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

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