Correlation Between Rio Tinto and Neometals

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

Diversification Opportunities for Rio Tinto and Neometals

0.04

Correlation Coefficient

Rio Tinto  Neometals

Significant diversification

The 3 months correlation between Rio and Neometals is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto ADR and Neometals Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Neometals ADR 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 Neometals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Neometals ADR has no effect on the direction of Rio Tinto i.e., Rio Tinto and Neometals go up and down completely randomly.

Pair Corralation between Rio Tinto and Neometals

Considering the 90-day investment horizon Rio Tinto ADR is expected to generate 0.29 times more return on investment than Neometals. However, Rio Tinto ADR is 3.49 times less risky than Neometals. It trades about 0.0 of its potential returns per unit of risk. Neometals Ltd ADR is currently generating about -0.07 per unit of risk. If you would invest  6,220  in Rio Tinto ADR on October 9, 2024 and sell it today you would lose (382.00) from holding Rio Tinto ADR or give up 6.14% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	75.73%
Values	Daily Returns

Rio Tinto ADR  vs.  Neometals Ltd ADR

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.

Neometals ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Neometals Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Neometals is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Rio Tinto and Neometals

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

The idea behind Rio Tinto ADR and Neometals Ltd ADR 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.