Correlation Between Rio Tinto and Royal Bank

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

Diversification Opportunities for Rio Tinto and Royal Bank

0.02

Correlation Coefficient

Rio Tinto  Royal Bank

Significant diversification

The 3 months correlation between Rio and Royal is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto PLC and Royal Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Bank 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 Royal Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Bank has no effect on the direction of Rio Tinto i.e., Rio Tinto and Royal Bank go up and down completely randomly.

Pair Corralation between Rio Tinto and Royal Bank

Assuming the 90 days trading horizon Rio Tinto PLC is expected to under-perform the Royal Bank. In addition to that, Rio Tinto is 1.58 times more volatile than Royal Bank of. It trades about -0.17 of its total potential returns per unit of risk. Royal Bank of is currently generating about -0.14 per unit of volatility. If you would invest  12,356  in Royal Bank of on September 27, 2024 and sell it today you would lose (298.00) from holding Royal Bank of or give up 2.41% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Rio Tinto PLC  vs.  Royal Bank of

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 unsteady 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.

Royal Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Royal Bank of has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Royal Bank is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Rio Tinto and Royal Bank

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

The idea behind Rio Tinto PLC and Royal Bank of 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.