Correlation Between Rio Tinto and Benton Resources

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

Diversification Opportunities for Rio Tinto and Benton Resources

0.4

Correlation Coefficient

Rio Tinto  Benton Resources

Very weak diversification

The 3 months correlation between Rio and Benton is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto ADR and Benton Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Benton Resources 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 Benton Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Benton Resources has no effect on the direction of Rio Tinto i.e., Rio Tinto and Benton Resources go up and down completely randomly.

Pair Corralation between Rio Tinto and Benton Resources

Considering the 90-day investment horizon Rio Tinto ADR is expected to under-perform the Benton Resources. But the stock apears to be less risky and, when comparing its historical volatility, Rio Tinto ADR is 12.77 times less risky than Benton Resources. The stock trades about -0.04 of its potential returns per unit of risk. The Benton Resources is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  5.00  in Benton Resources on October 22, 2024 and sell it today you would earn a total of  2.11  from holding Benton Resources or generate 42.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.5%
Values	Daily Returns

Rio Tinto ADR  vs.  Benton Resources

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 latest unsteady performance, the Stock's forward indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Benton Resources

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Benton Resources are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Benton Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rio Tinto and Benton Resources

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

The idea behind Rio Tinto ADR and Benton Resources 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.