Correlation Between Patriot Battery and Rio Tinto

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

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

Diversification Opportunities for Patriot Battery and Rio Tinto

0.42

Correlation Coefficient

Patriot Battery  Rio Tinto

Very weak diversification

The 3 months correlation between Patriot and Rio is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Patriot Battery Metals and Rio Tinto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto and Patriot Battery 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 Patriot Battery Metals 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 Patriot Battery i.e., Patriot Battery and Rio Tinto go up and down completely randomly.

Pair Corralation between Patriot Battery and Rio Tinto

Assuming the 90 days trading horizon Patriot Battery Metals is expected to under-perform the Rio Tinto. In addition to that, Patriot Battery is 5.78 times more volatile than Rio Tinto. It trades about -0.02 of its total potential returns per unit of risk. Rio Tinto is currently generating about -0.02 per unit of volatility. If you would invest  12,778  in Rio Tinto on September 21, 2024 and sell it today you would lose (1,038) from holding Rio Tinto or give up 8.12% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.6%
Values	Daily Returns

Patriot Battery Metals  vs.  Rio Tinto

Patriot Battery Metals

Risk-Adjusted Performance

3 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Patriot Battery Metals are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Patriot Battery unveiled solid returns over the last few months and may actually be approaching a breakup point.

Rio Tinto

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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 Patriot Battery and Rio Tinto

The main advantage of trading using opposite Patriot Battery and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Patriot Battery 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 Patriot Battery Metals 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.