Correlation Between Rio Tinto and NioCorp Developments

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

Diversification Opportunities for Rio Tinto and NioCorp Developments

0.22

Correlation Coefficient

Rio Tinto  NioCorp Developments

Modest diversification

The 3 months correlation between Rio and NioCorp is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto ADR and NioCorp Developments Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NioCorp Developments 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 NioCorp Developments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NioCorp Developments has no effect on the direction of Rio Tinto i.e., Rio Tinto and NioCorp Developments go up and down completely randomly.

Pair Corralation between Rio Tinto and NioCorp Developments

Considering the 90-day investment horizon Rio Tinto ADR is expected to generate 0.29 times more return on investment than NioCorp Developments. However, Rio Tinto ADR is 3.44 times less risky than NioCorp Developments. It trades about -0.02 of its potential returns per unit of risk. NioCorp Developments Ltd is currently generating about -0.14 per unit of risk. If you would invest  6,091  in Rio Tinto ADR on December 1, 2024 and sell it today you would lose (35.00) from holding Rio Tinto ADR or give up 0.57% of portfolio value over 90 days.

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

Rio Tinto ADR  vs.  NioCorp Developments Ltd

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.

NioCorp Developments

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NioCorp Developments Ltd are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental drivers, NioCorp Developments sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rio Tinto and NioCorp Developments

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

The idea behind Rio Tinto ADR and NioCorp Developments Ltd 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.