Correlation Between Visa and Rio Tinto

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

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

Diversification Opportunities for Visa and Rio Tinto

-0.9

Correlation Coefficient

Visa  Rio Tinto

Pay attention - limited upside

The 3 months correlation between Visa and Rio is -0.9. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A 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 Visa 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 Visa Class A 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 Visa i.e., Visa and Rio Tinto go up and down completely randomly.

Pair Corralation between Visa and Rio Tinto

Taking into account the 90-day investment horizon Visa Class A is expected to under-perform the Rio Tinto. But the stock apears to be less risky and, when comparing its historical volatility, Visa Class A is 1.54 times less risky than Rio Tinto. The stock trades about -0.02 of its potential returns per unit of risk. The Rio Tinto PLC is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  869,000  in Rio Tinto PLC on October 12, 2024 and sell it today you would earn a total of  15,000  from holding Rio Tinto PLC or generate 1.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	95.0%
Values	Daily Returns

Visa Class A  vs.  Rio Tinto PLC

Visa Class A

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Visa and Rio Tinto

The main advantage of trading using opposite Visa and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa 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 Visa Class A 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.