Correlation Between Rio Tinto and Wealth Minerals

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

Diversification Opportunities for Rio Tinto and Wealth Minerals

0.76

Correlation Coefficient

Rio Tinto  Wealth Minerals

Poor diversification

The 3 months correlation between Rio and Wealth is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto ADR and Wealth Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wealth Minerals 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 Wealth Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wealth Minerals has no effect on the direction of Rio Tinto i.e., Rio Tinto and Wealth Minerals go up and down completely randomly.

Pair Corralation between Rio Tinto and Wealth Minerals

Considering the 90-day investment horizon Rio Tinto ADR is expected to under-perform the Wealth Minerals. But the stock apears to be less risky and, when comparing its historical volatility, Rio Tinto ADR is 14.5 times less risky than Wealth Minerals. The stock trades about -0.51 of its potential returns per unit of risk. The Wealth Minerals is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  3.00  in Wealth Minerals on October 8, 2024 and sell it today you would earn a total of  1.00  from holding Wealth Minerals or generate 33.33% return on investment over 90 days.

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

Rio Tinto ADR  vs.  Wealth Minerals

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.

Wealth Minerals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wealth Minerals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's essential 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 Wealth Minerals

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

The idea behind Rio Tinto ADR and Wealth Minerals 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.