Correlation Between SP Merval and Rio Tinto

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

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

Diversification Opportunities for SP Merval and Rio Tinto

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Correlation Coefficient

SP Merval  Rio Tinto

Pay attention - limited upside

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

Pair Corralation between SP Merval and Rio Tinto

Assuming the 90 days trading horizon SP Merval is expected to generate 0.74 times more return on investment than Rio Tinto. However, SP Merval is 1.35 times less risky than Rio Tinto. It trades about 0.13 of its potential returns per unit of risk. Rio Tinto PLC is currently generating about 0.03 per unit of risk. If you would invest  25,036,200  in SP Merval on October 12, 2024 and sell it today you would earn a total of  74,963,800  from holding SP Merval or generate 299.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	98.97%
Values	Daily Returns

SP Merval  vs.  Rio Tinto PLC

Pair Trading with SP Merval and Rio Tinto

The main advantage of trading using opposite SP Merval and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SP Merval 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 SP Merval 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.