Correlation Between Rio Tinto and Sky Metals

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

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

Diversification Opportunities for Rio Tinto and Sky Metals

-0.3

Correlation Coefficient

Rio Tinto  Sky Metals

Very good diversification

The 3 months correlation between Rio and Sky is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto and Sky Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sky Metals 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 Sky Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sky Metals has no effect on the direction of Rio Tinto i.e., Rio Tinto and Sky Metals go up and down completely randomly.

Pair Corralation between Rio Tinto and Sky Metals

Assuming the 90 days trading horizon Rio Tinto is expected to generate 28.63 times less return on investment than Sky Metals. But when comparing it to its historical volatility, Rio Tinto is 2.9 times less risky than Sky Metals. It trades about 0.01 of its potential returns per unit of risk. Sky Metals is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  3.80  in Sky Metals on October 4, 2024 and sell it today you would earn a total of  1.60  from holding Sky Metals or generate 42.11% 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.  Sky Metals

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.

Sky Metals

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sky Metals are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Sky Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rio Tinto and Sky Metals

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

The idea behind Rio Tinto and Sky Metals 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.