Correlation Between OBSERVE MEDICAL and Rio Tinto

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

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

Diversification Opportunities for OBSERVE MEDICAL and Rio Tinto

0.06

Correlation Coefficient

OBSERVE MEDICAL  Rio Tinto

Significant diversification

The 3 months correlation between OBSERVE and Rio is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding OBSERVE MEDICAL ASA 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 OBSERVE MEDICAL 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 OBSERVE MEDICAL ASA 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 OBSERVE MEDICAL i.e., OBSERVE MEDICAL and Rio Tinto go up and down completely randomly.

Pair Corralation between OBSERVE MEDICAL and Rio Tinto

Assuming the 90 days trading horizon OBSERVE MEDICAL ASA is expected to generate 11.11 times more return on investment than Rio Tinto. However, OBSERVE MEDICAL is 11.11 times more volatile than Rio Tinto Group. It trades about 0.01 of its potential returns per unit of risk. Rio Tinto Group is currently generating about 0.02 per unit of risk. If you would invest  44.00  in OBSERVE MEDICAL ASA on December 21, 2024 and sell it today you would lose (14.00) from holding OBSERVE MEDICAL ASA or give up 31.82% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	94.92%
Values	Daily Returns

OBSERVE MEDICAL ASA  vs.  Rio Tinto Group

OBSERVE MEDICAL ASA

Risk-Adjusted Performance

Very Weak

Over the last 90 days OBSERVE MEDICAL ASA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, OBSERVE MEDICAL is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Rio Tinto Group

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto Group are ranked lower than 1 (%) 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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with OBSERVE MEDICAL and Rio Tinto

The main advantage of trading using opposite OBSERVE MEDICAL and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if OBSERVE MEDICAL 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 OBSERVE MEDICAL ASA 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.