Correlation Between Rio Tinto and K9 Gold

Can any of the company-specific risk be diversified away by investing in both Rio Tinto and K9 Gold 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 K9 Gold 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 K9 Gold Corp, you can compare the effects of market volatilities on Rio Tinto and K9 Gold 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 K9 Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and K9 Gold.

Diversification Opportunities for Rio Tinto and K9 Gold

-0.32

Correlation Coefficient

Rio Tinto  K9 Gold

Very good diversification

The 3 months correlation between Rio and WDFCF is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto Group and K9 Gold Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on K9 Gold Corp 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 K9 Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of K9 Gold Corp has no effect on the direction of Rio Tinto i.e., Rio Tinto and K9 Gold go up and down completely randomly.

Pair Corralation between Rio Tinto and K9 Gold

Assuming the 90 days horizon Rio Tinto is expected to generate 266.53 times less return on investment than K9 Gold. But when comparing it to its historical volatility, Rio Tinto Group is 40.19 times less risky than K9 Gold. It trades about 0.02 of its potential returns per unit of risk. K9 Gold Corp is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  49.00  in K9 Gold Corp on September 13, 2024 and sell it today you would lose (43.08) from holding K9 Gold Corp or give up 87.92% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	92.51%
Values	Daily Returns

Rio Tinto Group  vs.  K9 Gold Corp

Rio Tinto Group

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Rio Tinto may actually be approaching a critical reversion point that can send shares even higher in January 2025.

K9 Gold Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days K9 Gold Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, K9 Gold 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 K9 Gold

The main advantage of trading using opposite Rio Tinto and K9 Gold positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rio Tinto position performs unexpectedly, K9 Gold 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 K9 Gold will offset losses from the drop in K9 Gold's long position.

The idea behind Rio Tinto Group and K9 Gold Corp 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.