Correlation Between Rio Tinto and FSA Group

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

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

Diversification Opportunities for Rio Tinto and FSA Group

0.27

Correlation Coefficient

Rio Tinto  FSA Group

Modest diversification

The 3 months correlation between Rio and FSA is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto and FSA Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FSA Group 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 FSA Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FSA Group has no effect on the direction of Rio Tinto i.e., Rio Tinto and FSA Group go up and down completely randomly.

Pair Corralation between Rio Tinto and FSA Group

Assuming the 90 days trading horizon Rio Tinto is expected to generate 1.4 times less return on investment than FSA Group. But when comparing it to its historical volatility, Rio Tinto is 1.49 times less risky than FSA Group. It trades about 0.07 of its potential returns per unit of risk. FSA Group is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  77.00  in FSA Group on December 27, 2024 and sell it today you would earn a total of  6.00  from holding FSA Group or generate 7.79% return on investment over 90 days.

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

Rio Tinto  vs.  FSA Group

Rio Tinto

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Rio Tinto may actually be approaching a critical reversion point that can send shares even higher in April 2025.

FSA Group

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in FSA Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, FSA Group may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Rio Tinto and FSA Group

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

The idea behind Rio Tinto and FSA 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.