Correlation Between Lithium Americas and Rio Tinto

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

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

Diversification Opportunities for Lithium Americas and Rio Tinto

-0.32

Correlation Coefficient

Lithium Americas  Rio Tinto

Very good diversification

The 3 months correlation between Lithium and Rio is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Lithium Americas Corp 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 Lithium Americas 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 Lithium Americas Corp 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 Lithium Americas i.e., Lithium Americas and Rio Tinto go up and down completely randomly.

Pair Corralation between Lithium Americas and Rio Tinto

Considering the 90-day investment horizon Lithium Americas Corp is expected to under-perform the Rio Tinto. In addition to that, Lithium Americas is 2.86 times more volatile than Rio Tinto ADR. It trades about -0.02 of its total potential returns per unit of risk. Rio Tinto ADR is currently generating about 0.14 per unit of volatility. If you would invest  5,693  in Rio Tinto ADR on December 27, 2024 and sell it today you would earn a total of  594.00  from holding Rio Tinto ADR or generate 10.43% return on investment over 90 days.

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

Lithium Americas Corp  vs.  Rio Tinto ADR

Lithium Americas Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lithium Americas Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Lithium Americas is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Rio Tinto ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto ADR are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady forward indicators, Rio Tinto may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Lithium Americas and Rio Tinto

The main advantage of trading using opposite Lithium Americas and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lithium Americas 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 Lithium Americas Corp 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.