Correlation Between Rio Tinto and United States

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

Diversification Opportunities for Rio Tinto and United States

0.7

Correlation Coefficient

Rio Tinto  United States

Poor diversification

The 3 months correlation between Rio and United is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto PLC and United States Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United States Steel 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 United States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United States Steel has no effect on the direction of Rio Tinto i.e., Rio Tinto and United States go up and down completely randomly.

Pair Corralation between Rio Tinto and United States

Assuming the 90 days trading horizon Rio Tinto PLC is expected to under-perform the United States. In addition to that, Rio Tinto is 1.06 times more volatile than United States Steel. It trades about -0.05 of its total potential returns per unit of risk. United States Steel is currently generating about 0.01 per unit of volatility. If you would invest  1,581,500  in United States Steel on October 26, 2024 and sell it today you would lose (121,500) from holding United States Steel or give up 7.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.62%
Values	Daily Returns

Rio Tinto PLC  vs.  United States Steel

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 somewhat strong basic indicators, Rio Tinto is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

United States Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United States Steel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, United States is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Rio Tinto and United States

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

The idea behind Rio Tinto PLC and United States Steel 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.