Correlation Between Rio Tinto and Macquarie Group

Can any of the company-specific risk be diversified away by investing in both Rio Tinto and Macquarie 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 Macquarie 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 Macquarie Group Ltd, you can compare the effects of market volatilities on Rio Tinto and Macquarie 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 Macquarie Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and Macquarie Group.

Diversification Opportunities for Rio Tinto and Macquarie Group

-0.16

Correlation Coefficient

Rio Tinto  Macquarie Group

Good diversification

The 3 months correlation between Rio and Macquarie is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto and Macquarie Group Ltd 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 Group. 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 Group go up and down completely randomly.

Pair Corralation between Rio Tinto and Macquarie Group

Assuming the 90 days trading horizon Rio Tinto is expected to under-perform the Macquarie Group. In addition to that, Rio Tinto is 4.65 times more volatile than Macquarie Group Ltd. It trades about -0.05 of its total potential returns per unit of risk. Macquarie Group Ltd is currently generating about 0.01 per unit of volatility. If you would invest  10,287  in Macquarie Group Ltd on December 1, 2024 and sell it today you would earn a total of  13.00  from holding Macquarie Group Ltd or generate 0.13% return on investment over 90 days.

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

Rio Tinto  vs.  Macquarie Group Ltd

Rio Tinto

Risk-Adjusted Performance

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.

Macquarie Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Macquarie Group Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Macquarie Group is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Rio Tinto and Macquarie Group

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

The idea behind Rio Tinto and Macquarie Group Ltd 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.