Correlation Between Rio Tinto and Alligator Energy

Can any of the company-specific risk be diversified away by investing in both Rio Tinto and Alligator Energy 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 Alligator Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Rio Tinto ADR and Alligator Energy Limited, you can compare the effects of market volatilities on Rio Tinto and Alligator Energy 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 Alligator Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and Alligator Energy.

Diversification Opportunities for Rio Tinto and Alligator Energy

-0.31

Correlation Coefficient

Rio Tinto  Alligator Energy

Very good diversification

The 3 months correlation between Rio and Alligator is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto ADR and Alligator Energy Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alligator Energy 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 ADR are associated (or correlated) with Alligator Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alligator Energy has no effect on the direction of Rio Tinto i.e., Rio Tinto and Alligator Energy go up and down completely randomly.

Pair Corralation between Rio Tinto and Alligator Energy

Considering the 90-day investment horizon Rio Tinto is expected to generate 1.37 times less return on investment than Alligator Energy. But when comparing it to its historical volatility, Rio Tinto ADR is 10.78 times less risky than Alligator Energy. It trades about 0.17 of its potential returns per unit of risk. Alligator Energy Limited is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2.30  in Alligator Energy Limited on December 19, 2024 and sell it today you would lose (0.70) from holding Alligator Energy Limited or give up 30.43% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.77%
Values	Daily Returns

Rio Tinto ADR  vs.  Alligator Energy Limited

Rio Tinto ADR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto ADR are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady forward indicators, Rio Tinto displayed solid returns over the last few months and may actually be approaching a breakup point.

Alligator Energy

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Alligator Energy Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Alligator Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rio Tinto and Alligator Energy

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

The idea behind Rio Tinto ADR and Alligator Energy Limited 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.