Correlation Between Rio Tinto and MA Financial

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

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

Diversification Opportunities for Rio Tinto and MA Financial

0.25

Correlation Coefficient

Rio Tinto  MA Financial

Modest diversification

The 3 months correlation between Rio and MAF is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto and MA Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MA Financial 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 MA Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MA Financial Group has no effect on the direction of Rio Tinto i.e., Rio Tinto and MA Financial go up and down completely randomly.

Pair Corralation between Rio Tinto and MA Financial

Assuming the 90 days trading horizon Rio Tinto is expected to generate 5.65 times less return on investment than MA Financial. But when comparing it to its historical volatility, Rio Tinto is 1.84 times less risky than MA Financial. It trades about 0.06 of its potential returns per unit of risk. MA Financial Group is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  551.00  in MA Financial Group on December 20, 2024 and sell it today you would earn a total of  177.00  from holding MA Financial Group or generate 32.12% 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.  MA Financial 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 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.

MA Financial Group

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MA Financial Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, MA Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rio Tinto and MA Financial

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

The idea behind Rio Tinto and MA Financial 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.