Correlation Between Fortuna Silver and Rio2

Can any of the company-specific risk be diversified away by investing in both Fortuna Silver and Rio2 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 Fortuna Silver and Rio2 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Fortuna Silver Mines and Rio2 Limited, you can compare the effects of market volatilities on Fortuna Silver and Rio2 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 Fortuna Silver with a short position of Rio2. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fortuna Silver and Rio2.

Diversification Opportunities for Fortuna Silver and Rio2

0.67

Correlation Coefficient

Fortuna Silver  Rio2

Poor diversification

The 3 months correlation between Fortuna and Rio2 is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Fortuna Silver Mines and Rio2 Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio2 Limited and Fortuna Silver 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 Fortuna Silver Mines are associated (or correlated) with Rio2. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rio2 Limited has no effect on the direction of Fortuna Silver i.e., Fortuna Silver and Rio2 go up and down completely randomly.

Pair Corralation between Fortuna Silver and Rio2

Considering the 90-day investment horizon Fortuna Silver is expected to generate 5.53 times less return on investment than Rio2. But when comparing it to its historical volatility, Fortuna Silver Mines is 1.04 times less risky than Rio2. It trades about 0.01 of its potential returns per unit of risk. Rio2 Limited is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  45.00  in Rio2 Limited on August 17, 2024 and sell it today you would earn a total of  1.00  from holding Rio2 Limited or generate 2.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Fortuna Silver Mines  vs.  Rio2 Limited

Fortuna Silver Mines

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fortuna Silver Mines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Fortuna Silver is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Rio2 Limited

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Rio2 Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Rio2 is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Fortuna Silver and Rio2

The main advantage of trading using opposite Fortuna Silver and Rio2 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fortuna Silver position performs unexpectedly, Rio2 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 Rio2 will offset losses from the drop in Rio2's long position.

The idea behind Fortuna Silver Mines and Rio2 Limited 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.

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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.