Correlation Between Rio Tinto and Halliburton

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

Diversification Opportunities for Rio Tinto and Halliburton

0.57

Correlation Coefficient

Rio Tinto  Halliburton

Very weak diversification

The 3 months correlation between Rio and Halliburton is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto PLC and Halliburton Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Halliburton 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 Halliburton. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Halliburton has no effect on the direction of Rio Tinto i.e., Rio Tinto and Halliburton go up and down completely randomly.

Pair Corralation between Rio Tinto and Halliburton

Assuming the 90 days trading horizon Rio Tinto PLC is expected to generate 0.85 times more return on investment than Halliburton. However, Rio Tinto PLC is 1.18 times less risky than Halliburton. It trades about 0.07 of its potential returns per unit of risk. Halliburton Co is currently generating about 0.04 per unit of risk. If you would invest  869,000  in Rio Tinto PLC on October 12, 2024 and sell it today you would earn a total of  15,000  from holding Rio Tinto PLC or generate 1.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	90.48%
Values	Daily Returns

Rio Tinto PLC  vs.  Halliburton Co

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.

Halliburton

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Rio Tinto and Halliburton

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

The idea behind Rio Tinto PLC and Halliburton Co 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.