Correlation Between Rio Tinto and Erdene Resource

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

Diversification Opportunities for Rio Tinto and Erdene Resource

0.79

Correlation Coefficient

Rio Tinto  Erdene Resource

Poor diversification

The 3 months correlation between Rio and Erdene is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto ADR and Erdene Resource Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Erdene Resource Deve 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 Erdene Resource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Erdene Resource Deve has no effect on the direction of Rio Tinto i.e., Rio Tinto and Erdene Resource go up and down completely randomly.

Pair Corralation between Rio Tinto and Erdene Resource

Considering the 90-day investment horizon Rio Tinto ADR is expected to generate 0.35 times more return on investment than Erdene Resource. However, Rio Tinto ADR is 2.89 times less risky than Erdene Resource. It trades about -0.23 of its potential returns per unit of risk. Erdene Resource Development is currently generating about -0.14 per unit of risk. If you would invest  6,351  in Rio Tinto ADR on October 4, 2024 and sell it today you would lose (483.00) from holding Rio Tinto ADR or give up 7.61% 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.  Erdene Resource Development

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.

Erdene Resource Deve

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Erdene Resource Development 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 fundamental 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 Erdene Resource

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

The idea behind Rio Tinto ADR and Erdene Resource Development 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.

Check out your portfolio center.

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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.