Correlation Between Rio Tinto and Bradda Head

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

Diversification Opportunities for Rio Tinto and Bradda Head

-0.32

Correlation Coefficient

Rio Tinto  Bradda Head

Very good diversification

The 3 months correlation between Rio and Bradda is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto Group and Bradda Head Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bradda Head Lithium 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 Bradda Head. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bradda Head Lithium has no effect on the direction of Rio Tinto i.e., Rio Tinto and Bradda Head go up and down completely randomly.

Pair Corralation between Rio Tinto and Bradda Head

Assuming the 90 days horizon Rio Tinto Group is not expected to generate positive returns. Moreover, Rio Tinto is 2.17 times more volatile than Bradda Head Lithium. It trades away all of its potential returns to assume current level of volatility. Bradda Head Lithium is currently generating about 0.01 per unit of risk. If you would invest  1.70  in Bradda Head Lithium on September 2, 2024 and sell it today you would earn a total of  0.01  from holding Bradda Head Lithium or generate 0.59% return on investment over 90 days.

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

Rio Tinto Group  vs.  Bradda Head Lithium

Rio Tinto Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rio Tinto Group has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Bradda Head Lithium

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bradda Head Lithium are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward indicators, Bradda Head is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Rio Tinto and Bradda Head

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

The idea behind Rio Tinto Group and Bradda Head Lithium 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.