Correlation Between Rio Tinto and Sumitomo Metal

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

Diversification Opportunities for Rio Tinto and Sumitomo Metal

0.36

Correlation Coefficient

Rio Tinto  Sumitomo Metal

Weak diversification

The 3 months correlation between Rio and Sumitomo is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto Group and Sumitomo Metal Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Metal Mining 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 Sumitomo Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Metal Mining has no effect on the direction of Rio Tinto i.e., Rio Tinto and Sumitomo Metal go up and down completely randomly.

Pair Corralation between Rio Tinto and Sumitomo Metal

Assuming the 90 days horizon Rio Tinto Group is expected to generate 1.07 times more return on investment than Sumitomo Metal. However, Rio Tinto is 1.07 times more volatile than Sumitomo Metal Mining. It trades about 0.06 of its potential returns per unit of risk. Sumitomo Metal Mining is currently generating about 0.02 per unit of risk. If you would invest  7,115  in Rio Tinto Group on December 29, 2024 and sell it today you would earn a total of  497.00  from holding Rio Tinto Group or generate 6.99% return on investment over 90 days.

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

Rio Tinto Group  vs.  Sumitomo Metal Mining

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 fragile basic indicators, Rio Tinto may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Sumitomo Metal Mining

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Metal Mining are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Sumitomo Metal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Rio Tinto and Sumitomo Metal

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

The idea behind Rio Tinto Group and Sumitomo Metal Mining 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.