Correlation Between Rio Tinto and Ivanhoe Mines

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

Diversification Opportunities for Rio Tinto and Ivanhoe Mines

-0.56

Correlation Coefficient

Rio Tinto  Ivanhoe Mines

Excellent diversification

The 3 months correlation between Rio and Ivanhoe is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto ADR and Ivanhoe Mines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ivanhoe Mines 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 Ivanhoe Mines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ivanhoe Mines has no effect on the direction of Rio Tinto i.e., Rio Tinto and Ivanhoe Mines go up and down completely randomly.

Pair Corralation between Rio Tinto and Ivanhoe Mines

Considering the 90-day investment horizon Rio Tinto ADR is expected to generate 0.32 times more return on investment than Ivanhoe Mines. However, Rio Tinto ADR is 3.15 times less risky than Ivanhoe Mines. It trades about 0.17 of its potential returns per unit of risk. Ivanhoe Mines is currently generating about -0.04 per unit of risk. If you would invest  5,658  in Rio Tinto ADR on December 20, 2024 and sell it today you would earn a total of  728.00  from holding Rio Tinto ADR or generate 12.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Rio Tinto ADR  vs.  Ivanhoe Mines

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.

Ivanhoe Mines

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ivanhoe Mines has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Rio Tinto and Ivanhoe Mines

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

The idea behind Rio Tinto ADR and Ivanhoe Mines 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 Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..