Correlation Between Rio Tinto and Australian Strategic

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

Diversification Opportunities for Rio Tinto and Australian Strategic

0.06

Correlation Coefficient

Rio Tinto  Australian Strategic

Significant diversification

The 3 months correlation between Rio and Australian is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto ADR and Australian Strategic Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Australian Strategic 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 Australian Strategic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Australian Strategic has no effect on the direction of Rio Tinto i.e., Rio Tinto and Australian Strategic go up and down completely randomly.

Pair Corralation between Rio Tinto and Australian Strategic

Considering the 90-day investment horizon Rio Tinto ADR is expected to generate 0.31 times more return on investment than Australian Strategic. However, Rio Tinto ADR is 3.19 times less risky than Australian Strategic. It trades about 0.01 of its potential returns per unit of risk. Australian Strategic Materials is currently generating about -0.03 per unit of risk. If you would invest  6,127  in Rio Tinto ADR on November 29, 2024 and sell it today you would lose (56.00) from holding Rio Tinto ADR or give up 0.91% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.2%
Values	Daily Returns

Rio Tinto ADR  vs.  Australian Strategic Materials

Rio Tinto ADR

Risk-Adjusted Performance

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 very healthy forward indicators, Rio Tinto is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Australian Strategic

Risk-Adjusted Performance

Insignificant

Over the last 90 days Australian Strategic Materials 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 primary indicators remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Rio Tinto and Australian Strategic

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

The idea behind Rio Tinto ADR and Australian Strategic Materials 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.