Correlation Between Rio Tinto and Capitol Health

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

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

Diversification Opportunities for Rio Tinto and Capitol Health

0.74

Correlation Coefficient

Rio Tinto  Capitol Health

Poor diversification

The 3 months correlation between Rio and Capitol is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto and Capitol Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capitol Health 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 are associated (or correlated) with Capitol Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capitol Health has no effect on the direction of Rio Tinto i.e., Rio Tinto and Capitol Health go up and down completely randomly.

Pair Corralation between Rio Tinto and Capitol Health

Assuming the 90 days trading horizon Rio Tinto is expected to generate 0.61 times more return on investment than Capitol Health. However, Rio Tinto is 1.65 times less risky than Capitol Health. It trades about -0.02 of its potential returns per unit of risk. Capitol Health is currently generating about -0.14 per unit of risk. If you would invest  11,808  in Rio Tinto on August 26, 2024 and sell it today you would lose (90.00) from holding Rio Tinto or give up 0.76% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Rio Tinto  vs.  Capitol Health

Rio Tinto

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Rio Tinto is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Capitol Health

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Capitol Health are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward-looking indicators, Capitol Health unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rio Tinto and Capitol Health

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

The idea behind Rio Tinto and Capitol Health 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.