Correlation Between Ford and Rio Tinto
Can any of the company-specific risk be diversified away by investing in both Ford 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 Ford and Rio Tinto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Rio Tinto PLC, you can compare the effects of market volatilities on Ford 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 Ford with a short position of Rio Tinto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Rio Tinto.
Diversification Opportunities for Ford and Rio Tinto
Pay attention - limited upside
The 3 months correlation between Ford and Rio is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor 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 Ford 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 Ford Motor 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 Ford i.e., Ford and Rio Tinto go up and down completely randomly.
Pair Corralation between Ford and Rio Tinto
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Rio Tinto. In addition to that, Ford is 1.28 times more volatile than Rio Tinto PLC. It trades about -0.13 of its total potential returns per unit of risk. Rio Tinto PLC is currently generating about 0.02 per unit of volatility. If you would invest 883,600 in Rio Tinto PLC on January 21, 2024 and sell it today you would earn a total of 3,350 from holding Rio Tinto PLC or generate 0.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 90.48% |
| Values | Daily Returns |
Ford Motor vs. Rio Tinto PLC
Performance |
| Timeline |
| Ford Motor |
| Rio Tinto PLC |
Ford and Rio Tinto Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Rio Tinto
The main advantage of trading using opposite Ford and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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 Ford Motor 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.| Rio Tinto vs. United States Steel | Rio Tinto vs. Harmony Gold Mining | Rio Tinto vs. Transportadora de Gas | Rio Tinto vs. Telecom Argentina |
Check out your portfolio center.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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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