Correlation Between Rio Tinto and Mitsui Mining

Can any of the company-specific risk be diversified away by investing in both Rio Tinto and Mitsui Mining 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 Mitsui Mining into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Rio Tinto Group and Mitsui Mining Smelting, you can compare the effects of market volatilities on Rio Tinto and Mitsui Mining 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 Mitsui Mining. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and Mitsui Mining.

Diversification Opportunities for Rio Tinto and Mitsui Mining

0.72

Correlation Coefficient

Rio Tinto  Mitsui Mining

Poor diversification

The 3 months correlation between Rio and Mitsui is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto Group and Mitsui Mining Smelting in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mitsui Mining Smelting 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 Group are associated (or correlated) with Mitsui Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mitsui Mining Smelting has no effect on the direction of Rio Tinto i.e., Rio Tinto and Mitsui Mining go up and down completely randomly.

Pair Corralation between Rio Tinto and Mitsui Mining

Assuming the 90 days trading horizon Rio Tinto Group is expected to under-perform the Mitsui Mining. But the stock apears to be less risky and, when comparing its historical volatility, Rio Tinto Group is 1.05 times less risky than Mitsui Mining. The stock trades about -0.11 of its potential returns per unit of risk. The Mitsui Mining Smelting is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  3,100  in Mitsui Mining Smelting on October 6, 2024 and sell it today you would lose (200.00) from holding Mitsui Mining Smelting or give up 6.45% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Rio Tinto Group  vs.  Mitsui Mining Smelting

Rio Tinto Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rio Tinto Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile 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.

Mitsui Mining Smelting

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mitsui Mining Smelting has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Mitsui Mining is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Rio Tinto and Mitsui Mining

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

The idea behind Rio Tinto Group and Mitsui Mining Smelting 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.