Correlation Between Rio Tinto and Bathurst Metals

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

Diversification Opportunities for Rio Tinto and Bathurst Metals

-0.61

Correlation Coefficient

Rio Tinto  Bathurst Metals

Excellent diversification

The 3 months correlation between Rio and Bathurst is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto Group and Bathurst Metals Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bathurst Metals Corp 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 Bathurst Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bathurst Metals Corp has no effect on the direction of Rio Tinto i.e., Rio Tinto and Bathurst Metals go up and down completely randomly.

Pair Corralation between Rio Tinto and Bathurst Metals

Assuming the 90 days horizon Rio Tinto Group is expected to under-perform the Bathurst Metals. In addition to that, Rio Tinto is 1.27 times more volatile than Bathurst Metals Corp. It trades about -0.09 of its total potential returns per unit of risk. Bathurst Metals Corp is currently generating about 0.12 per unit of volatility. If you would invest  3.86  in Bathurst Metals Corp on October 9, 2024 and sell it today you would earn a total of  0.50  from holding Bathurst Metals Corp or generate 12.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Rio Tinto Group  vs.  Bathurst Metals Corp

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 fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Bathurst Metals Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bathurst Metals Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Bathurst Metals reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rio Tinto and Bathurst Metals

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

The idea behind Rio Tinto Group and Bathurst Metals Corp 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.