Correlation Between Telecom Argentina and Rio Tinto

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

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

Diversification Opportunities for Telecom Argentina and Rio Tinto

-0.61

Correlation Coefficient

Telecom Argentina  Rio Tinto

Excellent diversification

The 3 months correlation between Telecom and Rio is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Telecom Argentina and Rio Tinto PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto PLC and Telecom Argentina 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 Telecom Argentina 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 PLC has no effect on the direction of Telecom Argentina i.e., Telecom Argentina and Rio Tinto go up and down completely randomly.

Pair Corralation between Telecom Argentina and Rio Tinto

Assuming the 90 days trading horizon Telecom Argentina is expected to generate 1.23 times more return on investment than Rio Tinto. However, Telecom Argentina is 1.23 times more volatile than Rio Tinto PLC. It trades about 0.12 of its potential returns per unit of risk. Rio Tinto PLC is currently generating about 0.04 per unit of risk. If you would invest  42,740  in Telecom Argentina on October 26, 2024 and sell it today you would earn a total of  248,760  from holding Telecom Argentina or generate 582.03% return on investment over 90 days.

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

Telecom Argentina  vs.  Rio Tinto PLC

Telecom Argentina

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Telecom Argentina are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Telecom Argentina sustained solid returns over the last few months and may actually be approaching a breakup point.

Rio Tinto PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rio Tinto PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Rio Tinto is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Telecom Argentina and Rio Tinto

The main advantage of trading using opposite Telecom Argentina and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Telecom Argentina 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 Telecom Argentina and Rio Tinto PLC 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.