Correlation Between Japan Airlines and Rio Tinto

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

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

Diversification Opportunities for Japan Airlines and Rio Tinto

0.0

Correlation Coefficient

Japan Airlines  Rio Tinto

Pay attention - limited upside

The 3 months correlation between Japan and Rio is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Japan Airlines Ltd 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 Japan Airlines 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 Japan Airlines Ltd 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 Japan Airlines i.e., Japan Airlines and Rio Tinto go up and down completely randomly.

Pair Corralation between Japan Airlines and Rio Tinto

If you would invest  5,666  in Rio Tinto ADR on December 19, 2024 and sell it today you would earn a total of  748.00  from holding Rio Tinto ADR or generate 13.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Japan Airlines Ltd  vs.  Rio Tinto ADR

Japan Airlines

Risk-Adjusted Performance

Very Weak

Over the last 90 days Japan Airlines Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Japan Airlines is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Rio Tinto ADR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto ADR are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady forward indicators, Rio Tinto displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Japan Airlines and Rio Tinto

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

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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.