Correlation Between Rio Tinto and Alcoa Corp
Can any of the company-specific risk be diversified away by investing in both Rio Tinto and Alcoa Corp 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 Rio Tinto and Alcoa Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Rio Tinto PLC and Alcoa Corp, you can compare the effects of market volatilities on Rio Tinto and Alcoa Corp 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 Rio Tinto with a short position of Alcoa Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and Alcoa Corp.
Diversification Opportunities for Rio Tinto and Alcoa Corp
-0.27 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Rio and Alcoa is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto PLC and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp and Rio Tinto 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 PLC are associated (or correlated) with Alcoa Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alcoa Corp has no effect on the direction of Rio Tinto i.e., Rio Tinto and Alcoa Corp go up and down completely randomly.
Pair Corralation between Rio Tinto and Alcoa Corp
Assuming the 90 days trading horizon Rio Tinto is expected to generate 3.96 times less return on investment than Alcoa Corp. But when comparing it to its historical volatility, Rio Tinto PLC is 1.45 times less risky than Alcoa Corp. It trades about 0.09 of its potential returns per unit of risk. Alcoa Corp is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 3,186 in Alcoa Corp on January 24, 2024 and sell it today you would earn a total of 420.00 from holding Alcoa Corp or generate 13.18% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 85.71% |
Values | Daily Returns |
Rio Tinto PLC vs. Alcoa Corp
Performance |
Timeline |
Rio Tinto PLC |
Alcoa Corp |
Rio Tinto and Alcoa Corp Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Rio Tinto and Alcoa Corp
The main advantage of trading using opposite Rio Tinto and Alcoa Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rio Tinto position performs unexpectedly, Alcoa Corp 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 Alcoa Corp will offset losses from the drop in Alcoa Corp's long position.Rio Tinto vs. Harmony Gold Mining | Rio Tinto vs. Transportadora de Gas | Rio Tinto vs. BANK OF AMERICA | Rio Tinto vs. United States Steel |
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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