Correlation Between Rio Tinto and UMC Electronics

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

Diversification Opportunities for Rio Tinto and UMC Electronics

0.42

Correlation Coefficient

Rio Tinto  UMC Electronics

Very weak diversification

The 3 months correlation between Rio and UMC is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto Group and UMC Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UMC Electronics 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 UMC Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UMC Electronics has no effect on the direction of Rio Tinto i.e., Rio Tinto and UMC Electronics go up and down completely randomly.

Pair Corralation between Rio Tinto and UMC Electronics

Assuming the 90 days trading horizon Rio Tinto is expected to generate 1.45 times less return on investment than UMC Electronics. But when comparing it to its historical volatility, Rio Tinto Group is 2.51 times less risky than UMC Electronics. It trades about 0.1 of its potential returns per unit of risk. UMC Electronics Co is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  174.00  in UMC Electronics Co on December 27, 2024 and sell it today you would earn a total of  14.00  from holding UMC Electronics Co or generate 8.05% return on investment over 90 days.

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

Rio Tinto Group  vs.  UMC Electronics Co

Rio Tinto Group

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Rio Tinto may actually be approaching a critical reversion point that can send shares even higher in April 2025.

UMC Electronics

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in UMC Electronics Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, UMC Electronics may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Rio Tinto and UMC Electronics

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

The idea behind Rio Tinto Group and UMC Electronics Co 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.