Correlation Between Rio Tinto and Grupo Mxico

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

Diversification Opportunities for Rio Tinto and Grupo Mxico

0.1

Correlation Coefficient

Rio Tinto  Grupo Mxico

Average diversification

The 3 months correlation between Rio and Grupo is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto Group and Grupo Mxico SAB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grupo Mxico SAB 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 Grupo Mxico. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grupo Mxico SAB has no effect on the direction of Rio Tinto i.e., Rio Tinto and Grupo Mxico go up and down completely randomly.

Pair Corralation between Rio Tinto and Grupo Mxico

Assuming the 90 days horizon Rio Tinto Group is expected to generate 1.2 times more return on investment than Grupo Mxico. However, Rio Tinto is 1.2 times more volatile than Grupo Mxico SAB. It trades about 0.09 of its potential returns per unit of risk. Grupo Mxico SAB is currently generating about 0.07 per unit of risk. If you would invest  5,551  in Rio Tinto Group on December 25, 2024 and sell it today you would earn a total of  549.00  from holding Rio Tinto Group or generate 9.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	83.05%
Values	Daily Returns

Rio Tinto Group  vs.  Grupo Mxico SAB

Rio Tinto Group

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto Group are ranked lower than 6 (%) 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.

Grupo Mxico SAB

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Grupo Mxico SAB are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Grupo Mxico may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Rio Tinto and Grupo Mxico

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

The idea behind Rio Tinto Group and Grupo Mxico SAB 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.