Correlation Between Rio Tinto and Enbridge

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

Diversification Opportunities for Rio Tinto and Enbridge

-0.6

Correlation Coefficient

Rio Tinto  Enbridge

Excellent diversification

The 3 months correlation between Rio and Enbridge is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto PLC and Enbridge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enbridge 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 Enbridge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enbridge has no effect on the direction of Rio Tinto i.e., Rio Tinto and Enbridge go up and down completely randomly.

Pair Corralation between Rio Tinto and Enbridge

Assuming the 90 days trading horizon Rio Tinto PLC is expected to under-perform the Enbridge. In addition to that, Rio Tinto is 1.19 times more volatile than Enbridge. It trades about -0.18 of its total potential returns per unit of risk. Enbridge is currently generating about 0.42 per unit of volatility. If you would invest  5,980  in Enbridge on October 13, 2024 and sell it today you would earn a total of  310.00  from holding Enbridge or generate 5.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	73.68%
Values	Daily Returns

Rio Tinto PLC  vs.  Enbridge

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 rather sound technical and fundamental indicators, Rio Tinto is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Enbridge

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Enbridge unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rio Tinto and Enbridge

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

The idea behind Rio Tinto PLC and Enbridge 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.

Check out your portfolio center.

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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.