Correlation Between Rio Tinto and Southern Cross
Can any of the company-specific risk be diversified away by investing in both Rio Tinto and Southern Cross 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 Southern Cross into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Rio Tinto and Southern Cross Media, you can compare the effects of market volatilities on Rio Tinto and Southern Cross 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 Southern Cross. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and Southern Cross.
Diversification Opportunities for Rio Tinto and Southern Cross
-0.35 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Rio and Southern is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto and Southern Cross Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Cross Media 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 Southern Cross. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Cross Media has no effect on the direction of Rio Tinto i.e., Rio Tinto and Southern Cross go up and down completely randomly.
Pair Corralation between Rio Tinto and Southern Cross
Assuming the 90 days trading horizon Rio Tinto is expected to under-perform the Southern Cross. But the stock apears to be less risky and, when comparing its historical volatility, Rio Tinto is 2.65 times less risky than Southern Cross. The stock trades about -0.02 of its potential returns per unit of risk. The Southern Cross Media is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 51.00 in Southern Cross Media on October 6, 2024 and sell it today you would earn a total of 10.00 from holding Southern Cross Media or generate 19.61% 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. Southern Cross Media
Performance |
Timeline |
Rio Tinto |
Southern Cross Media |
Rio Tinto and Southern Cross Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Rio Tinto and Southern Cross
The main advantage of trading using opposite Rio Tinto and Southern Cross positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rio Tinto position performs unexpectedly, Southern Cross 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 Southern Cross will offset losses from the drop in Southern Cross' long position.Rio Tinto vs. Regal Funds Management | Rio Tinto vs. Ora Banda Mining | Rio Tinto vs. Richmond Vanadium Technology | Rio Tinto vs. Duketon Mining |
Southern Cross vs. Aneka Tambang Tbk | Southern Cross vs. Woolworths | Southern Cross vs. Commonwealth Bank | Southern Cross vs. BHP Group Limited |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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