Correlation Between Prime Mining and Rio Tinto

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

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

Diversification Opportunities for Prime Mining and Rio Tinto

0.7

Correlation Coefficient

Prime Mining  Rio Tinto

Poor diversification

The 3 months correlation between Prime and Rio is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Prime Mining Corp and Rio Tinto ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto ADR and Prime Mining 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 Prime Mining Corp 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 ADR has no effect on the direction of Prime Mining i.e., Prime Mining and Rio Tinto go up and down completely randomly.

Pair Corralation between Prime Mining and Rio Tinto

Assuming the 90 days horizon Prime Mining Corp is expected to generate 2.91 times more return on investment than Rio Tinto. However, Prime Mining is 2.91 times more volatile than Rio Tinto ADR. It trades about 0.0 of its potential returns per unit of risk. Rio Tinto ADR is currently generating about -0.01 per unit of risk. If you would invest  157.00  in Prime Mining Corp on October 7, 2024 and sell it today you would lose (58.00) from holding Prime Mining Corp or give up 36.94% of portfolio value over 90 days.

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

Prime Mining Corp  vs.  Rio Tinto ADR

Prime Mining Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prime Mining Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Rio Tinto ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rio Tinto ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Prime Mining and Rio Tinto

The main advantage of trading using opposite Prime Mining and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prime Mining 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 Prime Mining Corp and Rio Tinto ADR 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.