Correlation Between Macquarie Group and Rio Tinto

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

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

Diversification Opportunities for Macquarie Group and Rio Tinto

-0.16

Correlation Coefficient

Macquarie Group  Rio Tinto

Good diversification

The 3 months correlation between Macquarie and Rio is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Macquarie Group Ltd and Rio Tinto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto and Macquarie Group 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 Macquarie Group 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 has no effect on the direction of Macquarie Group i.e., Macquarie Group and Rio Tinto go up and down completely randomly.

Pair Corralation between Macquarie Group and Rio Tinto

Assuming the 90 days trading horizon Macquarie Group Ltd is expected to generate 0.21 times more return on investment than Rio Tinto. However, Macquarie Group Ltd is 4.65 times less risky than Rio Tinto. It trades about 0.01 of its potential returns per unit of risk. Rio Tinto is currently generating about -0.05 per unit of risk. If you would invest  10,287  in Macquarie Group Ltd on December 1, 2024 and sell it today you would earn a total of  13.00  from holding Macquarie Group Ltd or generate 0.13% return on investment over 90 days.

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

Macquarie Group Ltd  vs.  Rio Tinto

Macquarie Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Macquarie Group Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Macquarie Group is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Rio Tinto

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rio Tinto has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Rio Tinto is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Macquarie Group and Rio Tinto

The main advantage of trading using opposite Macquarie Group and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Macquarie Group 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 Macquarie Group Ltd and Rio Tinto 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.