Correlation Between Rio Tinto and Macquarie

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

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

Diversification Opportunities for Rio Tinto and Macquarie

-0.55

Correlation Coefficient

Rio Tinto  Macquarie

Excellent diversification

The 3 months correlation between Rio and Macquarie is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto and Macquarie Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Macquarie 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 Macquarie. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Macquarie Group has no effect on the direction of Rio Tinto i.e., Rio Tinto and Macquarie go up and down completely randomly.

Pair Corralation between Rio Tinto and Macquarie

Assuming the 90 days trading horizon Rio Tinto is expected to generate 0.88 times more return on investment than Macquarie. However, Rio Tinto is 1.13 times less risky than Macquarie. It trades about 0.08 of its potential returns per unit of risk. Macquarie Group is currently generating about -0.09 per unit of risk. If you would invest  11,432  in Rio Tinto on December 30, 2024 and sell it today you would earn a total of  694.00  from holding Rio Tinto or generate 6.07% return on investment over 90 days.

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

Rio Tinto  vs.  Macquarie 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.

Macquarie Group

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Rio Tinto and Macquarie

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

The idea behind Rio Tinto and Macquarie 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.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.