Correlation Between Rio Tinto and Electra Battery

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

Diversification Opportunities for Rio Tinto and Electra Battery

-0.13

Correlation Coefficient

Rio Tinto  Electra Battery

Good diversification

The 3 months correlation between Rio and Electra is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto Group and Electra Battery Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electra Battery Materials 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 Electra Battery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electra Battery Materials has no effect on the direction of Rio Tinto i.e., Rio Tinto and Electra Battery go up and down completely randomly.

Pair Corralation between Rio Tinto and Electra Battery

Assuming the 90 days horizon Rio Tinto Group is expected to generate 0.51 times more return on investment than Electra Battery. However, Rio Tinto Group is 1.97 times less risky than Electra Battery. It trades about 0.11 of its potential returns per unit of risk. Electra Battery Materials is currently generating about -0.2 per unit of risk. If you would invest  5,551  in Rio Tinto Group on December 28, 2024 and sell it today you would earn a total of  699.00  from holding Rio Tinto Group or generate 12.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	85.0%
Values	Daily Returns

Rio Tinto Group  vs.  Electra Battery Materials

Rio Tinto Group

Risk-Adjusted Performance

OK

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

Electra Battery Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Electra Battery Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's fundamental drivers remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Rio Tinto and Electra Battery

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

The idea behind Rio Tinto Group and Electra Battery Materials 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..