Correlation Between Rio Tinto and Givaudan

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

Diversification Opportunities for Rio Tinto and Givaudan

0.62

Correlation Coefficient

Rio Tinto  Givaudan

Poor diversification

The 3 months correlation between Rio and Givaudan is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto PLC and Givaudan SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Givaudan SA 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 Givaudan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Givaudan SA has no effect on the direction of Rio Tinto i.e., Rio Tinto and Givaudan go up and down completely randomly.

Pair Corralation between Rio Tinto and Givaudan

Assuming the 90 days trading horizon Rio Tinto PLC is expected to under-perform the Givaudan. In addition to that, Rio Tinto is 1.28 times more volatile than Givaudan SA. It trades about -0.18 of its total potential returns per unit of risk. Givaudan SA is currently generating about 0.01 per unit of volatility. If you would invest  392,000  in Givaudan SA on September 22, 2024 and sell it today you would earn a total of  500.00  from holding Givaudan SA or generate 0.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

Rio Tinto PLC  vs.  Givaudan SA

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.

Givaudan SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Givaudan SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Rio Tinto and Givaudan

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

The idea behind Rio Tinto PLC and Givaudan SA 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.