Correlation Between Halliburton and Rio Tinto

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

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

Diversification Opportunities for Halliburton and Rio Tinto

0.23

Correlation Coefficient

Halliburton  Rio Tinto

Modest diversification

The 3 months correlation between Halliburton and Rio is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Halliburton Co 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 Halliburton 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 Halliburton Co 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 Halliburton i.e., Halliburton and Rio Tinto go up and down completely randomly.

Pair Corralation between Halliburton and Rio Tinto

Assuming the 90 days trading horizon Halliburton is expected to generate 1.07 times less return on investment than Rio Tinto. In addition to that, Halliburton is 1.83 times more volatile than Rio Tinto PLC. It trades about 0.08 of its total potential returns per unit of risk. Rio Tinto PLC is currently generating about 0.15 per unit of volatility. If you would invest  879,000  in Rio Tinto PLC on October 27, 2024 and sell it today you would earn a total of  31,000  from holding Rio Tinto PLC or generate 3.53% return on investment over 90 days.

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

Halliburton Co  vs.  Rio Tinto PLC

Halliburton

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Halliburton Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, Halliburton is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the 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. Despite somewhat strong basic indicators, Rio Tinto is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Halliburton and Rio Tinto

The main advantage of trading using opposite Halliburton and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Halliburton 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 Halliburton Co 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.