Correlation Between Rio Tinto and ADRIATIC METALS

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

By analyzing existing cross correlation between Rio Tinto Group and ADRIATIC METALS LS 013355, you can compare the effects of market volatilities on Rio Tinto and ADRIATIC METALS 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 ADRIATIC METALS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and ADRIATIC METALS.

Diversification Opportunities for Rio Tinto and ADRIATIC METALS

-0.32

Correlation Coefficient

Rio Tinto  ADRIATIC METALS

Very good diversification

The 3 months correlation between Rio and ADRIATIC is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto Group and ADRIATIC METALS LS 013355 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADRIATIC METALS LS 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 Group are associated (or correlated) with ADRIATIC METALS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ADRIATIC METALS LS has no effect on the direction of Rio Tinto i.e., Rio Tinto and ADRIATIC METALS go up and down completely randomly.

Pair Corralation between Rio Tinto and ADRIATIC METALS

Assuming the 90 days trading horizon Rio Tinto Group is expected to generate 0.56 times more return on investment than ADRIATIC METALS. However, Rio Tinto Group is 1.78 times less risky than ADRIATIC METALS. It trades about -0.08 of its potential returns per unit of risk. ADRIATIC METALS LS 013355 is currently generating about -0.05 per unit of risk. If you would invest  7,219  in Rio Tinto Group on September 25, 2024 and sell it today you would lose (187.00) from holding Rio Tinto Group or give up 2.59% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Rio Tinto Group  vs.  ADRIATIC METALS LS 013355

Rio Tinto Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rio Tinto Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Rio Tinto is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

ADRIATIC METALS LS

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ADRIATIC METALS LS 013355 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, ADRIATIC METALS reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rio Tinto and ADRIATIC METALS

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

The idea behind Rio Tinto Group and ADRIATIC METALS LS 013355 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.