Correlation Between Australia and Rio Tinto
Can any of the company-specific risk be diversified away by investing in both Australia 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 Australia and Rio Tinto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Australia and New and Rio Tinto, you can compare the effects of market volatilities on Australia 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 Australia with a short position of Rio Tinto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Australia and Rio Tinto.
Diversification Opportunities for Australia and Rio Tinto
Good diversification
The 3 months correlation between Australia and Rio is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Australia and New and Rio Tinto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto and Australia 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 Australia and New 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 has no effect on the direction of Australia i.e., Australia and Rio Tinto go up and down completely randomly.
Pair Corralation between Australia and Rio Tinto
Assuming the 90 days trading horizon Australia and New is expected to generate 0.75 times more return on investment than Rio Tinto. However, Australia and New is 1.33 times less risky than Rio Tinto. It trades about 0.08 of its potential returns per unit of risk. Rio Tinto is currently generating about 0.02 per unit of risk. If you would invest 2,117 in Australia and New on August 28, 2024 and sell it today you would earn a total of 1,013 from holding Australia and New or generate 47.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Australia and New vs. Rio Tinto
Performance |
| Timeline |
| Australia and New |
| Rio Tinto |
Australia and Rio Tinto Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Australia and Rio Tinto
The main advantage of trading using opposite Australia and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Australia 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.| Australia vs. Stelar Metals | Australia vs. Cleanaway Waste Management | Australia vs. Centaurus Metals | Australia vs. Patriot Battery Metals |
| Rio Tinto vs. Perpetual Credit Income | Rio Tinto vs. Finexia Financial Group | Rio Tinto vs. Prime Financial Group | Rio Tinto vs. Ironbark Capital |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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