Correlation Between Pfizer and Rio Tinto

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

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

Diversification Opportunities for Pfizer and Rio Tinto

0.55

Correlation Coefficient

Pfizer  Rio Tinto

Very weak diversification

The 3 months correlation between Pfizer and Rio is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Pfizer Inc 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 Pfizer 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 Pfizer Inc 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 Pfizer i.e., Pfizer and Rio Tinto go up and down completely randomly.

Pair Corralation between Pfizer and Rio Tinto

Assuming the 90 days trading horizon Pfizer is expected to generate 1.59 times less return on investment than Rio Tinto. But when comparing it to its historical volatility, Pfizer Inc is 1.2 times less risky than Rio Tinto. It trades about 0.18 of its potential returns per unit of risk. Rio Tinto PLC is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  822,221  in Rio Tinto PLC on December 19, 2024 and sell it today you would earn a total of  210,279  from holding Rio Tinto PLC or generate 25.57% return on investment over 90 days.

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

Pfizer Inc  vs.  Rio Tinto PLC

Pfizer Inc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pfizer Inc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Pfizer sustained solid returns over the last few months and may actually be approaching a breakup point.

Rio Tinto PLC

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto PLC are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Rio Tinto sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pfizer and Rio Tinto

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