Correlation Between Rio Tinto and Standard Lithium

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

Diversification Opportunities for Rio Tinto and Standard Lithium

0.12

Correlation Coefficient

Rio Tinto  Standard Lithium

Average diversification

The 3 months correlation between Rio and Standard is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto Group and Standard Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Standard Lithium 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 Standard Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Standard Lithium has no effect on the direction of Rio Tinto i.e., Rio Tinto and Standard Lithium go up and down completely randomly.

Pair Corralation between Rio Tinto and Standard Lithium

Assuming the 90 days trading horizon Rio Tinto Group is expected to generate 0.61 times more return on investment than Standard Lithium. However, Rio Tinto Group is 1.64 times less risky than Standard Lithium. It trades about -0.19 of its potential returns per unit of risk. Standard Lithium is currently generating about -0.29 per unit of risk. If you would invest  6,035  in Rio Tinto Group on September 24, 2024 and sell it today you would lose (365.00) from holding Rio Tinto Group or give up 6.05% of portfolio value over 90 days.

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

Rio Tinto Group  vs.  Standard Lithium

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 nearly stable basic indicators, Rio Tinto is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Standard Lithium

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Standard Lithium are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Standard Lithium may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Rio Tinto and Standard Lithium

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

The idea behind Rio Tinto Group and Standard Lithium 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.