Correlation Between Challenger and Rio Tinto
Can any of the company-specific risk be diversified away by investing in both Challenger 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 Challenger and Rio Tinto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Challenger and Rio Tinto, you can compare the effects of market volatilities on Challenger 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 Challenger with a short position of Rio Tinto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Challenger and Rio Tinto.
Diversification Opportunities for Challenger and Rio Tinto
0.01 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Challenger and Rio is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Challenger and Rio Tinto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto and Challenger 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 Challenger 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 Challenger i.e., Challenger and Rio Tinto go up and down completely randomly.
Pair Corralation between Challenger and Rio Tinto
Assuming the 90 days trading horizon Challenger is expected to under-perform the Rio Tinto. In addition to that, Challenger is 1.25 times more volatile than Rio Tinto. It trades about 0.0 of its total potential returns per unit of risk. Rio Tinto is currently generating about 0.02 per unit of volatility. If you would invest 10,460 in Rio Tinto on September 2, 2024 and sell it today you would earn a total of 1,364 from holding Rio Tinto or generate 13.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Challenger vs. Rio Tinto
Performance |
| Timeline |
| Challenger |
| Rio Tinto |
Challenger and Rio Tinto Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Challenger and Rio Tinto
The main advantage of trading using opposite Challenger and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Challenger 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.| Challenger vs. RLF AgTech | Challenger vs. Ainsworth Game Technology | Challenger vs. Advanced Braking Technology | Challenger vs. Sandon Capital Investments |
| Rio Tinto vs. Super Retail Group | Rio Tinto vs. Ainsworth Game Technology | Rio Tinto vs. EROAD | Rio Tinto vs. Computershare |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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