Correlation Between 76720AAG1 and Eastern

Can any of the company-specific risk be diversified away by investing in both 76720AAG1 and Eastern 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 76720AAG1 and Eastern into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between RIO TINTO FIN and Eastern Co, you can compare the effects of market volatilities on 76720AAG1 and Eastern 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 76720AAG1 with a short position of Eastern. Check out your portfolio center. Please also check ongoing floating volatility patterns of 76720AAG1 and Eastern.

Diversification Opportunities for 76720AAG1 and Eastern

0.38

Correlation Coefficient

76720AAG1  Eastern

Weak diversification

The 3 months correlation between 76720AAG1 and Eastern is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding RIO TINTO FIN and Eastern Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern and 76720AAG1 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 FIN are associated (or correlated) with Eastern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern has no effect on the direction of 76720AAG1 i.e., 76720AAG1 and Eastern go up and down completely randomly.

Pair Corralation between 76720AAG1 and Eastern

Assuming the 90 days trading horizon RIO TINTO FIN is expected to generate 0.35 times more return on investment than Eastern. However, RIO TINTO FIN is 2.86 times less risky than Eastern. It trades about -0.02 of its potential returns per unit of risk. Eastern Co is currently generating about -0.03 per unit of risk. If you would invest  8,700  in RIO TINTO FIN on December 2, 2024 and sell it today you would lose (72.00) from holding RIO TINTO FIN or give up 0.83% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	80.33%
Values	Daily Returns

RIO TINTO FIN  vs.  Eastern Co

RIO TINTO FIN

Risk-Adjusted Performance

Very Weak

Over the last 90 days RIO TINTO FIN has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 76720AAG1 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Eastern

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eastern Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent primary indicators, Eastern is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with 76720AAG1 and Eastern

The main advantage of trading using opposite 76720AAG1 and Eastern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 76720AAG1 position performs unexpectedly, Eastern 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 Eastern will offset losses from the drop in Eastern's long position.

The idea behind RIO TINTO FIN and Eastern Co 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.