Correlation Between Rio Tinto and Australian Unity

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

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

Diversification Opportunities for Rio Tinto and Australian Unity

0.11

Correlation Coefficient

Rio Tinto  Australian Unity

Average diversification

The 3 months correlation between Rio and Australian is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto and Australian Unity Office in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Australian Unity Office and Rio Tinto 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 Rio Tinto are associated (or correlated) with Australian Unity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Australian Unity Office has no effect on the direction of Rio Tinto i.e., Rio Tinto and Australian Unity go up and down completely randomly.

Pair Corralation between Rio Tinto and Australian Unity

Assuming the 90 days trading horizon Rio Tinto is expected to under-perform the Australian Unity. In addition to that, Rio Tinto is 2.66 times more volatile than Australian Unity Office. It trades about -0.02 of its total potential returns per unit of risk. Australian Unity Office is currently generating about 0.25 per unit of volatility. If you would invest  105.00  in Australian Unity Office on September 28, 2024 and sell it today you would earn a total of  3.00  from holding Australian Unity Office or generate 2.86% return on investment over 90 days.

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

Rio Tinto  vs.  Australian Unity Office

Rio Tinto

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rio Tinto has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Australian Unity Office

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Australian Unity Office has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Australian Unity 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 Rio Tinto and Australian Unity

The main advantage of trading using opposite Rio Tinto and Australian Unity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rio Tinto position performs unexpectedly, Australian Unity 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 Australian Unity will offset losses from the drop in Australian Unity's long position.

The idea behind Rio Tinto and Australian Unity Office 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.