Correlation Between Rio Tinto and Karam Minerals

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

Diversification Opportunities for Rio Tinto and Karam Minerals

-0.3

Correlation Coefficient

Rio Tinto  Karam Minerals

Very good diversification

The 3 months correlation between Rio and Karam is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto Group and Karam Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Karam Minerals 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 Karam Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Karam Minerals has no effect on the direction of Rio Tinto i.e., Rio Tinto and Karam Minerals go up and down completely randomly.

Pair Corralation between Rio Tinto and Karam Minerals

Assuming the 90 days horizon Rio Tinto is expected to generate 28.92 times less return on investment than Karam Minerals. But when comparing it to its historical volatility, Rio Tinto Group is 3.72 times less risky than Karam Minerals. It trades about 0.01 of its potential returns per unit of risk. Karam Minerals is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3.27  in Karam Minerals on October 26, 2024 and sell it today you would earn a total of  13.73  from holding Karam Minerals or generate 419.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	75.0%
Values	Daily Returns

Rio Tinto Group  vs.  Karam Minerals

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.

Karam Minerals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Karam Minerals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, Karam Minerals 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 Karam Minerals

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

The idea behind Rio Tinto Group and Karam Minerals 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.