Correlation Between Rio Tinto and Rubicon Water

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

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

Diversification Opportunities for Rio Tinto and Rubicon Water

-0.07

Correlation Coefficient

Rio Tinto  Rubicon Water

Good diversification

The 3 months correlation between Rio and Rubicon is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto and Rubicon Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rubicon Water 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 Rubicon Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rubicon Water has no effect on the direction of Rio Tinto i.e., Rio Tinto and Rubicon Water go up and down completely randomly.

Pair Corralation between Rio Tinto and Rubicon Water

Assuming the 90 days trading horizon Rio Tinto is expected to generate 12.09 times less return on investment than Rubicon Water. But when comparing it to its historical volatility, Rio Tinto is 4.5 times less risky than Rubicon Water. It trades about 0.09 of its potential returns per unit of risk. Rubicon Water is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  29.00  in Rubicon Water on October 22, 2024 and sell it today you would earn a total of  5.00  from holding Rubicon Water or generate 17.24% 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.  Rubicon Water

Rio Tinto

Risk-Adjusted Performance

0 of 100

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.

Rubicon Water

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Rubicon Water are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain essential indicators, Rubicon Water unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rio Tinto and Rubicon Water

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

The idea behind Rio Tinto and Rubicon Water 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.