Correlation Between Rio Tinto and Sociedad Comercial

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

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

Diversification Opportunities for Rio Tinto and Sociedad Comercial

0.22

Correlation Coefficient

Rio Tinto  Sociedad Comercial

Modest diversification

The 3 months correlation between Rio and Sociedad is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto PLC and Sociedad Comercial del in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sociedad Comercial del 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 PLC are associated (or correlated) with Sociedad Comercial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sociedad Comercial del has no effect on the direction of Rio Tinto i.e., Rio Tinto and Sociedad Comercial go up and down completely randomly.

Pair Corralation between Rio Tinto and Sociedad Comercial

Assuming the 90 days trading horizon Rio Tinto is expected to generate 11.94 times less return on investment than Sociedad Comercial. But when comparing it to its historical volatility, Rio Tinto PLC is 1.85 times less risky than Sociedad Comercial. It trades about 0.07 of its potential returns per unit of risk. Sociedad Comercial del is currently generating about 0.46 of returns per unit of risk over similar time horizon. If you would invest  22,600  in Sociedad Comercial del on October 12, 2024 and sell it today you would earn a total of  5,500  from holding Sociedad Comercial del or generate 24.34% return on investment over 90 days.

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

Rio Tinto PLC  vs.  Sociedad Comercial del

Rio Tinto PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rio Tinto PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Sociedad Comercial del

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sociedad Comercial del are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sociedad Comercial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Rio Tinto and Sociedad Comercial

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

The idea behind Rio Tinto PLC and Sociedad Comercial del 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.