Correlation Between Livermore Investments and Rio Tinto

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

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

Diversification Opportunities for Livermore Investments and Rio Tinto

-0.69

Correlation Coefficient

Livermore Investments  Rio Tinto

Excellent diversification

The 3 months correlation between Livermore and Rio is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Livermore Investments Group 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 Livermore Investments 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 Livermore Investments Group 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 Livermore Investments i.e., Livermore Investments and Rio Tinto go up and down completely randomly.

Pair Corralation between Livermore Investments and Rio Tinto

Assuming the 90 days trading horizon Livermore Investments Group is expected to generate 1.97 times more return on investment than Rio Tinto. However, Livermore Investments is 1.97 times more volatile than Rio Tinto PLC. It trades about 0.12 of its potential returns per unit of risk. Rio Tinto PLC is currently generating about -0.11 per unit of risk. If you would invest  4,450  in Livermore Investments Group on October 7, 2024 and sell it today you would earn a total of  610.00  from holding Livermore Investments Group or generate 13.71% return on investment over 90 days.

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

Livermore Investments Group  vs.  Rio Tinto PLC

Livermore Investments

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Livermore Investments Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Livermore Investments exhibited solid returns over the last few months and may actually be approaching a breakup point.

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. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Livermore Investments and Rio Tinto

The main advantage of trading using opposite Livermore Investments and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Livermore Investments 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 Livermore Investments Group 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.