Correlation Between Rio Tinto and Charter Communications

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

Diversification Opportunities for Rio Tinto and Charter Communications

-0.49

Correlation Coefficient

Rio Tinto  Charter Communications

Very good diversification

The 3 months correlation between Rio and Charter is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto PLC and Charter Communications Cl in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Charter Communications 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 Charter Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Charter Communications has no effect on the direction of Rio Tinto i.e., Rio Tinto and Charter Communications go up and down completely randomly.

Pair Corralation between Rio Tinto and Charter Communications

Assuming the 90 days trading horizon Rio Tinto PLC is expected to under-perform the Charter Communications. But the stock apears to be less risky and, when comparing its historical volatility, Rio Tinto PLC is 1.72 times less risky than Charter Communications. The stock trades about -0.07 of its potential returns per unit of risk. The Charter Communications Cl is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  32,778  in Charter Communications Cl on September 24, 2024 and sell it today you would earn a total of  2,657  from holding Charter Communications Cl or generate 8.11% return on investment over 90 days.

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

Rio Tinto PLC  vs.  Charter Communications Cl

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. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Charter Communications

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Charter Communications Cl are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Charter Communications may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Rio Tinto and Charter Communications

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

The idea behind Rio Tinto PLC and Charter Communications Cl 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..