Correlation Between Anglo American and Rio Tinto
Can any of the company-specific risk be diversified away by investing in both Anglo American 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 Anglo American and Rio Tinto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Anglo American plc and Rio Tinto Group, you can compare the effects of market volatilities on Anglo American 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 Anglo American with a short position of Rio Tinto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Anglo American and Rio Tinto.
Diversification Opportunities for Anglo American and Rio Tinto
0.55 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Anglo and Rio is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Anglo American plc and Rio Tinto Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto Group and Anglo American 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 Anglo American plc 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 Group has no effect on the direction of Anglo American i.e., Anglo American and Rio Tinto go up and down completely randomly.
Pair Corralation between Anglo American and Rio Tinto
Assuming the 90 days horizon Anglo American plc is expected to generate 1.21 times more return on investment than Rio Tinto. However, Anglo American is 1.21 times more volatile than Rio Tinto Group. It trades about -0.02 of its potential returns per unit of risk. Rio Tinto Group is currently generating about -0.07 per unit of risk. If you would invest 3,036 in Anglo American plc on August 29, 2024 and sell it today you would lose (36.00) from holding Anglo American plc or give up 1.19% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
Anglo American plc vs. Rio Tinto Group
Performance |
| Timeline |
| Anglo American plc |
| Rio Tinto Group |
Anglo American and Rio Tinto Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Anglo American and Rio Tinto
The main advantage of trading using opposite Anglo American and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Anglo American 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.| Anglo American vs. Glencore PLC ADR | Anglo American vs. Fortescue Metals Group | Anglo American vs. South32 Limited | Anglo American vs. South32 ADR |
| Rio Tinto vs. Silver Dollar Resources | Rio Tinto vs. BHP Group Limited | Rio Tinto vs. Doubleview Gold Corp | Rio Tinto vs. Anglo American plc |
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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
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