Correlation Between Givaudan and Rio Tinto
Can any of the company-specific risk be diversified away by investing in both Givaudan and Rio Tinto 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 Givaudan and Rio Tinto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Givaudan SA and Rio Tinto PLC, you can compare the effects of market volatilities on Givaudan and Rio Tinto 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 Givaudan with a short position of Rio Tinto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Givaudan and Rio Tinto.
Diversification Opportunities for Givaudan and Rio Tinto
Poor diversification
The 3 months correlation between Givaudan and Rio is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Givaudan SA and Rio Tinto PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto PLC and Givaudan 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 Givaudan SA are associated (or correlated) with Rio Tinto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rio Tinto PLC has no effect on the direction of Givaudan i.e., Givaudan and Rio Tinto go up and down completely randomly.
Pair Corralation between Givaudan and Rio Tinto
Assuming the 90 days trading horizon Givaudan SA is expected to generate 0.87 times more return on investment than Rio Tinto. However, Givaudan SA is 1.15 times less risky than Rio Tinto. It trades about 0.05 of its potential returns per unit of risk. Rio Tinto PLC is currently generating about -0.01 per unit of risk. If you would invest 287,829 in Givaudan SA on September 23, 2024 and sell it today you would earn a total of 104,671 from holding Givaudan SA or generate 36.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.4% |
| Values | Daily Returns |
Givaudan SA vs. Rio Tinto PLC
Performance |
| Timeline |
| Givaudan SA |
| Rio Tinto PLC |
Givaudan and Rio Tinto Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Givaudan and Rio Tinto
The main advantage of trading using opposite Givaudan and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Givaudan position performs unexpectedly, Rio Tinto 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 Rio Tinto will offset losses from the drop in Rio Tinto's long position.| Givaudan vs. Travel Leisure Co | Givaudan vs. Mindflair Plc | Givaudan vs. Amedeo Air Four | Givaudan vs. Vulcan Materials Co |
| Rio Tinto vs. Givaudan SA | Rio Tinto vs. Antofagasta PLC | Rio Tinto vs. Ferrexpo PLC | Rio Tinto vs. Atalaya Mining |
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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