Correlation Between Rio Tinto and South Star

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

Diversification Opportunities for Rio Tinto and South Star

-0.21

Correlation Coefficient

Rio Tinto  South Star

Very good diversification

The 3 months correlation between Rio and South is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto Group and South Star Battery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on South Star Battery 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 South Star. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of South Star Battery has no effect on the direction of Rio Tinto i.e., Rio Tinto and South Star go up and down completely randomly.

Pair Corralation between Rio Tinto and South Star

Assuming the 90 days horizon Rio Tinto Group is expected to generate 0.31 times more return on investment than South Star. However, Rio Tinto Group is 3.26 times less risky than South Star. It trades about 0.11 of its potential returns per unit of risk. South Star Battery is currently generating about -0.02 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.  South Star Battery

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.

South Star Battery

Risk-Adjusted Performance

Very Weak

Over the last 90 days South Star Battery has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's fundamental drivers remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Rio Tinto and South Star

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

The idea behind Rio Tinto Group and South Star Battery 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.