Correlation Between Rio Tinto and Newport Gold

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

Diversification Opportunities for Rio Tinto and Newport Gold

0.4

Correlation Coefficient

Rio Tinto  Newport Gold

Very weak diversification

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

Pair Corralation between Rio Tinto and Newport Gold

Considering the 90-day investment horizon Rio Tinto is expected to generate 6.84 times less return on investment than Newport Gold. But when comparing it to its historical volatility, Rio Tinto ADR is 5.56 times less risky than Newport Gold. It trades about 0.14 of its potential returns per unit of risk. Newport Gold is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  0.12  in Newport Gold on December 27, 2024 and sell it today you would earn a total of  0.10  from holding Newport Gold or generate 83.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Rio Tinto ADR  vs.  Newport Gold

Rio Tinto ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto ADR are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady forward indicators, Rio Tinto may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Newport Gold

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Newport Gold are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Newport Gold reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rio Tinto and Newport Gold

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

The idea behind Rio Tinto ADR and Newport Gold 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.