Correlation Between Rio Tinto and Hutchison Telecommunicatio

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Can any of the company-specific risk be diversified away by investing in both Rio Tinto and Hutchison Telecommunicatio 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 Hutchison Telecommunicatio into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Rio Tinto and Hutchison Telecommunications, you can compare the effects of market volatilities on Rio Tinto and Hutchison Telecommunicatio 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 Hutchison Telecommunicatio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and Hutchison Telecommunicatio.

Diversification Opportunities for Rio Tinto and Hutchison Telecommunicatio

0.04
  Correlation Coefficient

Significant diversification

The 3 months correlation between Rio and Hutchison is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto and Hutchison Telecommunications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hutchison Telecommunicatio 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 Hutchison Telecommunicatio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hutchison Telecommunicatio has no effect on the direction of Rio Tinto i.e., Rio Tinto and Hutchison Telecommunicatio go up and down completely randomly.

Pair Corralation between Rio Tinto and Hutchison Telecommunicatio

Assuming the 90 days trading horizon Rio Tinto is expected to under-perform the Hutchison Telecommunicatio. But the stock apears to be less risky and, when comparing its historical volatility, Rio Tinto is 1.99 times less risky than Hutchison Telecommunicatio. The stock trades about -0.02 of its potential returns per unit of risk. The Hutchison Telecommunications is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2.50  in Hutchison Telecommunications on October 7, 2024 and sell it today you would earn a total of  0.10  from holding Hutchison Telecommunications or generate 4.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Rio Tinto  vs.  Hutchison Telecommunications

 Performance 
       Timeline  
Rio Tinto 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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.
Hutchison Telecommunicatio 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Hutchison Telecommunications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Hutchison Telecommunicatio is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Rio Tinto and Hutchison Telecommunicatio Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Rio Tinto and Hutchison Telecommunicatio

The main advantage of trading using opposite Rio Tinto and Hutchison Telecommunicatio positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rio Tinto position performs unexpectedly, Hutchison Telecommunicatio 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 Hutchison Telecommunicatio will offset losses from the drop in Hutchison Telecommunicatio's long position.
The idea behind Rio Tinto and Hutchison Telecommunications 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.
Check out your portfolio center.
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.

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