Correlation Between Sandfire Resources and Rio Tinto

Can any of the company-specific risk be diversified away by investing in both Sandfire Resources and Rio Tinto 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 Sandfire Resources and Rio Tinto into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sandfire Resources NL and Rio Tinto, you can compare the effects of market volatilities on Sandfire Resources and Rio Tinto 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 Sandfire Resources with a short position of Rio Tinto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sandfire Resources and Rio Tinto.

Diversification Opportunities for Sandfire Resources and Rio Tinto

0.65

Correlation Coefficient

Sandfire Resources  Rio Tinto

Poor diversification

The 3 months correlation between Sandfire and Rio is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Sandfire Resources NL and Rio Tinto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto and Sandfire Resources 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 Sandfire Resources NL are associated (or correlated) with Rio Tinto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rio Tinto has no effect on the direction of Sandfire Resources i.e., Sandfire Resources and Rio Tinto go up and down completely randomly.

Pair Corralation between Sandfire Resources and Rio Tinto

Assuming the 90 days trading horizon Sandfire Resources NL is expected to generate 1.5 times more return on investment than Rio Tinto. However, Sandfire Resources is 1.5 times more volatile than Rio Tinto. It trades about 0.12 of its potential returns per unit of risk. Rio Tinto is currently generating about 0.08 per unit of risk. If you would invest  939.00  in Sandfire Resources NL on December 29, 2024 and sell it today you would earn a total of  141.00  from holding Sandfire Resources NL or generate 15.02% return on investment over 90 days.

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

Sandfire Resources NL  vs.  Rio Tinto

Sandfire Resources

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sandfire Resources NL are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Sandfire Resources unveiled solid returns over the last few months and may actually be approaching a breakup point.

Rio Tinto

Risk-Adjusted Performance

Modest

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

Pair Trading with Sandfire Resources and Rio Tinto

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

The idea behind Sandfire Resources NL and Rio Tinto 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.