Correlation Between Rio Tinto and Glencore PLC

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

Diversification Opportunities for Rio Tinto and Glencore PLC

0.86

Correlation Coefficient

Rio Tinto  Glencore PLC

Very poor diversification

The 3 months correlation between Rio and Glencore is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto Group and Glencore PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Glencore PLC ADR 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 Glencore PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Glencore PLC ADR has no effect on the direction of Rio Tinto i.e., Rio Tinto and Glencore PLC go up and down completely randomly.

Pair Corralation between Rio Tinto and Glencore PLC

Assuming the 90 days horizon Rio Tinto Group is not expected to generate positive returns. Moreover, Rio Tinto is 1.16 times more volatile than Glencore PLC ADR. It trades away all of its potential returns to assume current level of volatility. Glencore PLC ADR is currently generating about -0.02 per unit of risk. If you would invest  6,260  in Rio Tinto Group on September 3, 2024 and sell it today you would lose (119.00) from holding Rio Tinto Group or give up 1.9% of portfolio value over 90 days.

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

Rio Tinto Group  vs.  Glencore PLC ADR

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.

Glencore PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Glencore PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Glencore PLC 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 Glencore PLC

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

The idea behind Rio Tinto Group and Glencore PLC ADR 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.