Correlation Between US Gold and Rio2

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

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

Diversification Opportunities for US Gold and Rio2

-0.26

Correlation Coefficient

US Gold  Rio2

Very good diversification

The 3 months correlation between USAU and Rio2 is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding US Gold Corp and Rio2 Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio2 Limited and US Gold 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 US Gold Corp 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 US Gold i.e., US Gold and Rio2 go up and down completely randomly.

Pair Corralation between US Gold and Rio2

Given the investment horizon of 90 days US Gold Corp is expected to under-perform the Rio2. In addition to that, US Gold is 1.55 times more volatile than Rio2 Limited. It trades about -0.23 of its total potential returns per unit of risk. Rio2 Limited is currently generating about -0.21 per unit of volatility. If you would invest  48.00  in Rio2 Limited on September 22, 2024 and sell it today you would lose (5.00) from holding Rio2 Limited or give up 10.42% of portfolio value over 90 days.

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

US Gold Corp  vs.  Rio2 Limited

US Gold Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in US Gold Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, US Gold unveiled solid returns over the last few months and may actually be approaching a breakup point.

Rio2 Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rio2 Limited has generated negative risk-adjusted returns adding no value to investors with long positions. 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 US Gold and Rio2

The main advantage of trading using opposite US Gold and Rio2 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if US Gold 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 US Gold Corp 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.

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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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.