Correlation Between BHP Group and Rio Tinto
Can any of the company-specific risk be diversified away by investing in both BHP Group 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 BHP Group and Rio Tinto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BHP Group Limited and Rio Tinto Group, you can compare the effects of market volatilities on BHP Group 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 BHP Group with a short position of Rio Tinto. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP Group and Rio Tinto.
Diversification Opportunities for BHP Group and Rio Tinto
Almost no diversification
The 3 months correlation between BHP and Rio is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited 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 BHP Group 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 BHP Group Limited 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 BHP Group i.e., BHP Group and Rio Tinto go up and down completely randomly.
Pair Corralation between BHP Group and Rio Tinto
Assuming the 90 days horizon BHP Group is expected to generate 12.19 times less return on investment than Rio Tinto. But when comparing it to its historical volatility, BHP Group Limited is 1.11 times less risky than Rio Tinto. It trades about 0.0 of its potential returns per unit of risk. Rio Tinto Group is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 5,819 in Rio Tinto Group on September 2, 2024 and sell it today you would earn a total of 81.00 from holding Rio Tinto Group or generate 1.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BHP Group Limited vs. Rio Tinto Group
Performance |
| Timeline |
| BHP Group Limited |
| Rio Tinto Group |
BHP Group and Rio Tinto Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BHP Group and Rio Tinto
The main advantage of trading using opposite BHP Group and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BHP Group 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.| BHP Group vs. ECHO INVESTMENT ZY | BHP Group vs. JJ SNACK FOODS | BHP Group vs. Astral Foods Limited | BHP Group vs. MGIC INVESTMENT |
| Rio Tinto vs. BHP Group Limited | Rio Tinto vs. Rio Tinto Group | Rio Tinto vs. Vale SA | Rio Tinto vs. Vale SA |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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