Correlation Between Rio Tinto and Altiplano Metals

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

Diversification Opportunities for Rio Tinto and Altiplano Metals

0.68

Correlation Coefficient

Rio Tinto  Altiplano Metals

Poor diversification

The 3 months correlation between Rio and Altiplano is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto ADR and Altiplano Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Altiplano 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 ADR are associated (or correlated) with Altiplano Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Altiplano Metals has no effect on the direction of Rio Tinto i.e., Rio Tinto and Altiplano Metals go up and down completely randomly.

Pair Corralation between Rio Tinto and Altiplano Metals

Considering the 90-day investment horizon Rio Tinto ADR is expected to under-perform the Altiplano Metals. But the stock apears to be less risky and, when comparing its historical volatility, Rio Tinto ADR is 4.82 times less risky than Altiplano Metals. The stock trades about -0.23 of its potential returns per unit of risk. The Altiplano Metals is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  3.60  in Altiplano Metals on October 4, 2024 and sell it today you would lose (0.40) from holding Altiplano Metals or give up 11.11% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Rio Tinto ADR  vs.  Altiplano Metals

Rio Tinto ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rio Tinto ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Altiplano Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Altiplano Metals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Rio Tinto and Altiplano Metals

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

The idea behind Rio Tinto ADR and Altiplano 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.