Correlation Between Rio Tinto and Central Asia

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

Diversification Opportunities for Rio Tinto and Central Asia

0.76

Correlation Coefficient

Rio Tinto  Central Asia

Poor diversification

The 3 months correlation between Rio and Central is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto PLC and Central Asia Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Asia Metals 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 Central Asia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Asia Metals has no effect on the direction of Rio Tinto i.e., Rio Tinto and Central Asia go up and down completely randomly.

Pair Corralation between Rio Tinto and Central Asia

Assuming the 90 days trading horizon Rio Tinto PLC is expected to under-perform the Central Asia. But the stock apears to be less risky and, when comparing its historical volatility, Rio Tinto PLC is 1.26 times less risky than Central Asia. The stock trades about -0.2 of its potential returns per unit of risk. The Central Asia Metals is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  16,000  in Central Asia Metals on September 23, 2024 and sell it today you would lose (480.00) from holding Central Asia Metals or give up 3.0% of portfolio value over 90 days.

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

Rio Tinto PLC  vs.  Central Asia Metals

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.

Central Asia Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Central Asia Metals 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 Central Asia

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

The idea behind Rio Tinto PLC and Central Asia Metals 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.