Correlation Between Rio Tinto and American Lithium
Can any of the company-specific risk be diversified away by investing in both Rio Tinto and American Lithium 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 Rio Tinto and American Lithium into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Rio Tinto Group and American Lithium Corp, you can compare the effects of market volatilities on Rio Tinto and American Lithium 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 Rio Tinto with a short position of American Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and American Lithium.
Diversification Opportunities for Rio Tinto and American Lithium
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Rio and American is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto Group and American Lithium Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Lithium Corp and Rio Tinto 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 Rio Tinto Group are associated (or correlated) with American Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Lithium Corp has no effect on the direction of Rio Tinto i.e., Rio Tinto and American Lithium go up and down completely randomly.
Pair Corralation between Rio Tinto and American Lithium
Assuming the 90 days trading horizon Rio Tinto Group is expected to generate 0.31 times more return on investment than American Lithium. However, Rio Tinto Group is 3.21 times less risky than American Lithium. It trades about -0.06 of its potential returns per unit of risk. American Lithium Corp is currently generating about -0.06 per unit of risk. If you would invest 7,368 in Rio Tinto Group on August 27, 2024 and sell it today you would lose (149.00) from holding Rio Tinto Group or give up 2.02% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Rio Tinto Group vs. American Lithium Corp
Performance |
| Timeline |
| Rio Tinto Group |
| American Lithium Corp |
Rio Tinto and American Lithium Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rio Tinto and American Lithium
The main advantage of trading using opposite Rio Tinto and American Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rio Tinto position performs unexpectedly, American Lithium 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 American Lithium will offset losses from the drop in American Lithium's long position.| Rio Tinto vs. Superior Plus Corp | Rio Tinto vs. NMI Holdings | Rio Tinto vs. Origin Agritech | Rio Tinto vs. SIVERS SEMICONDUCTORS AB |
| American Lithium vs. Superior Plus Corp | American Lithium vs. NMI Holdings | American Lithium vs. Origin Agritech | American Lithium vs. SIVERS SEMICONDUCTORS AB |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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