Correlation Between Rio Tinto and Pfizer

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

Diversification Opportunities for Rio Tinto and Pfizer

0.66

Correlation Coefficient

Rio Tinto  Pfizer

Poor diversification

The 3 months correlation between Rio and Pfizer is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto PLC and Pfizer Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pfizer Inc 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 Pfizer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pfizer Inc has no effect on the direction of Rio Tinto i.e., Rio Tinto and Pfizer go up and down completely randomly.

Pair Corralation between Rio Tinto and Pfizer

Assuming the 90 days trading horizon Rio Tinto PLC is expected to generate 1.01 times more return on investment than Pfizer. However, Rio Tinto is 1.01 times more volatile than Pfizer Inc. It trades about 0.03 of its potential returns per unit of risk. Pfizer Inc is currently generating about 0.02 per unit of risk. If you would invest  706,265  in Rio Tinto PLC on October 11, 2024 and sell it today you would earn a total of  161,735  from holding Rio Tinto PLC or generate 22.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.79%
Values	Daily Returns

Rio Tinto PLC  vs.  Pfizer Inc

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pfizer Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pfizer Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental 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 Pfizer

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

The idea behind Rio Tinto PLC and Pfizer Inc 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.