Correlation Between Mineral Res and Rio Tinto

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

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

Diversification Opportunities for Mineral Res and Rio Tinto

0.84

Correlation Coefficient

Mineral Res  Rio Tinto

Very poor diversification

The 3 months correlation between Mineral and Rio is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Mineral Res and Rio Tinto Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto Group and Mineral Res 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 Mineral Res 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 Group has no effect on the direction of Mineral Res i.e., Mineral Res and Rio Tinto go up and down completely randomly.

Pair Corralation between Mineral Res and Rio Tinto

Assuming the 90 days horizon Mineral Res is expected to under-perform the Rio Tinto. In addition to that, Mineral Res is 1.86 times more volatile than Rio Tinto Group. It trades about 0.0 of its total potential returns per unit of risk. Rio Tinto Group is currently generating about 0.03 per unit of volatility. If you would invest  7,364  in Rio Tinto Group on September 16, 2024 and sell it today you would earn a total of  231.00  from holding Rio Tinto Group or generate 3.14% return on investment over 90 days.

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

Mineral Res  vs.  Rio Tinto Group

Mineral Res

Risk-Adjusted Performance

0 of 100

Very Weak

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

Rio Tinto Group

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Rio Tinto is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Mineral Res and Rio Tinto

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