Correlation Between Rio2 and Hummingbird Resources

Can any of the company-specific risk be diversified away by investing in both Rio2 and Hummingbird Resources 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 Rio2 and Hummingbird Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Rio2 Limited and Hummingbird Resources PLC, you can compare the effects of market volatilities on Rio2 and Hummingbird Resources 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 Rio2 with a short position of Hummingbird Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio2 and Hummingbird Resources.

Diversification Opportunities for Rio2 and Hummingbird Resources

0.45

Correlation Coefficient

Rio2  Hummingbird Resources

Very weak diversification

The 3 months correlation between Rio2 and Hummingbird is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Rio2 Limited and Hummingbird Resources PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hummingbird Resources PLC and Rio2 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 Rio2 Limited are associated (or correlated) with Hummingbird Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hummingbird Resources PLC has no effect on the direction of Rio2 i.e., Rio2 and Hummingbird Resources go up and down completely randomly.

Pair Corralation between Rio2 and Hummingbird Resources

Assuming the 90 days horizon Rio2 is expected to generate 1.66 times less return on investment than Hummingbird Resources. But when comparing it to its historical volatility, Rio2 Limited is 3.51 times less risky than Hummingbird Resources. It trades about 0.2 of its potential returns per unit of risk. Hummingbird Resources PLC is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2.50  in Hummingbird Resources PLC on December 30, 2024 and sell it today you would earn a total of  0.60  from holding Hummingbird Resources PLC or generate 24.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	69.35%
Values	Daily Returns

Rio2 Limited  vs.  Hummingbird Resources PLC

Rio2 Limited

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rio2 Limited are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Rio2 reported solid returns over the last few months and may actually be approaching a breakup point.

Hummingbird Resources PLC

Risk-Adjusted Performance

OK

Over the last 90 days Hummingbird Resources PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Hummingbird Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rio2 and Hummingbird Resources

The main advantage of trading using opposite Rio2 and Hummingbird Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rio2 position performs unexpectedly, Hummingbird Resources 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 Hummingbird Resources will offset losses from the drop in Hummingbird Resources' long position.

The idea behind Rio2 Limited and Hummingbird Resources PLC 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.