Correlation Between Rio Tinto and American Helium

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

Diversification Opportunities for Rio Tinto and American Helium

-0.41

Correlation Coefficient

Rio Tinto  American Helium

Very good diversification

The 3 months correlation between Rio and American is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto Group and American Helium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Helium 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 American Helium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Helium has no effect on the direction of Rio Tinto i.e., Rio Tinto and American Helium go up and down completely randomly.

Pair Corralation between Rio Tinto and American Helium

Assuming the 90 days horizon Rio Tinto is expected to generate 199.56 times less return on investment than American Helium. But when comparing it to its historical volatility, Rio Tinto Group is 46.89 times less risky than American Helium. It trades about 0.03 of its potential returns per unit of risk. American Helium is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  16.00  in American Helium on September 2, 2024 and sell it today you would lose (5.00) from holding American Helium or give up 31.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Rio Tinto Group  vs.  American Helium

Rio Tinto Group

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto Group are ranked lower than 1 (%) 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.

American Helium

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Helium are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, American Helium reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rio Tinto and American Helium

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

The idea behind Rio Tinto Group and American Helium 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.