Correlation Between Rio Tinto and Vale SA

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

Diversification Opportunities for Rio Tinto and Vale SA

0.67

Correlation Coefficient

Rio Tinto  Vale SA

Poor diversification

The 3 months correlation between Rio and Vale is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto Group and Vale SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA 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 Vale SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vale SA has no effect on the direction of Rio Tinto i.e., Rio Tinto and Vale SA go up and down completely randomly.

Pair Corralation between Rio Tinto and Vale SA

Assuming the 90 days trading horizon Rio Tinto is expected to generate 1.53 times less return on investment than Vale SA. In addition to that, Rio Tinto is 1.1 times more volatile than Vale SA. It trades about 0.06 of its total potential returns per unit of risk. Vale SA is currently generating about 0.1 per unit of volatility. If you would invest  861.00  in Vale SA on December 28, 2024 and sell it today you would earn a total of  79.00  from holding Vale SA or generate 9.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Rio Tinto Group  vs.  Vale SA

Rio Tinto Group

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

Vale SA

Risk-Adjusted Performance

OK

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

Pair Trading with Rio Tinto and Vale SA

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

The idea behind Rio Tinto Group and Vale SA 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.