Correlation Between United Tractors and Rio Tinto

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

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

Diversification Opportunities for United Tractors and Rio Tinto

-0.1

Correlation Coefficient

United Tractors  Rio Tinto

Good diversification

The 3 months correlation between United and Rio is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding United Tractors Tbk 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 United Tractors 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 United Tractors Tbk 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 United Tractors i.e., United Tractors and Rio Tinto go up and down completely randomly.

Pair Corralation between United Tractors and Rio Tinto

Assuming the 90 days horizon United Tractors Tbk is expected to under-perform the Rio Tinto. In addition to that, United Tractors is 1.4 times more volatile than Rio Tinto Group. It trades about -0.06 of its total potential returns per unit of risk. Rio Tinto Group is currently generating about 0.08 per unit of volatility. If you would invest  5,600  in Rio Tinto Group on December 20, 2024 and sell it today you would earn a total of  527.00  from holding Rio Tinto Group or generate 9.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	83.05%
Values	Daily Returns

United Tractors Tbk  vs.  Rio Tinto Group

United Tractors Tbk

Risk-Adjusted Performance

Very Weak

Over the last 90 days United Tractors Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's forward-looking signals remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Rio Tinto Group

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Rio Tinto reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United Tractors and Rio Tinto

The main advantage of trading using opposite United Tractors and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Tractors 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 United Tractors Tbk 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.