Correlation Between Rio Tinto and Cardno

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

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

Diversification Opportunities for Rio Tinto and Cardno

0.48

Correlation Coefficient

Rio Tinto  Cardno

Very weak diversification

The 3 months correlation between Rio and Cardno is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto and Cardno in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cardno 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 Cardno. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cardno has no effect on the direction of Rio Tinto i.e., Rio Tinto and Cardno go up and down completely randomly.

Pair Corralation between Rio Tinto and Cardno

Assuming the 90 days trading horizon Rio Tinto is expected to under-perform the Cardno. But the stock apears to be less risky and, when comparing its historical volatility, Rio Tinto is 6.64 times less risky than Cardno. The stock trades about -0.06 of its potential returns per unit of risk. The Cardno is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  33.00  in Cardno on September 26, 2024 and sell it today you would lose (10.00) from holding Cardno or give up 30.3% of portfolio value over 90 days.

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

Rio Tinto  vs.  Cardno

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 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.

Cardno

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cardno has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Cardno 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 Cardno

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

The idea behind Rio Tinto and Cardno 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.