Correlation Between Eramet SA and Rio Tinto
Can any of the company-specific risk be diversified away by investing in both Eramet SA 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 Eramet SA and Rio Tinto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Eramet SA ADR and Rio Tinto Group, you can compare the effects of market volatilities on Eramet SA 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 Eramet SA with a short position of Rio Tinto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eramet SA and Rio Tinto.
Diversification Opportunities for Eramet SA and Rio Tinto
Weak diversification
The 3 months correlation between Eramet and Rio is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Eramet SA ADR 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 Eramet SA 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 Eramet SA ADR 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 Eramet SA i.e., Eramet SA and Rio Tinto go up and down completely randomly.
Pair Corralation between Eramet SA and Rio Tinto
Assuming the 90 days horizon Eramet SA ADR is expected to under-perform the Rio Tinto. But the pink sheet apears to be less risky and, when comparing its historical volatility, Eramet SA ADR is 1.68 times less risky than Rio Tinto. The pink sheet trades about -0.02 of its potential returns per unit of risk. The Rio Tinto Group is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 6,528 in Rio Tinto Group on August 30, 2024 and sell it today you would earn a total of 990.00 from holding Rio Tinto Group or generate 15.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 89.29% |
| Values | Daily Returns |
Eramet SA ADR vs. Rio Tinto Group
Performance |
| Timeline |
| Eramet SA ADR |
| Rio Tinto Group |
Eramet SA and Rio Tinto Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Eramet SA and Rio Tinto
The main advantage of trading using opposite Eramet SA and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eramet SA 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.| Eramet SA vs. Rockridge Resources | Eramet SA vs. Ameriwest Lithium | Eramet SA vs. Osisko Metals Incorporated | Eramet SA vs. Volt Lithium Corp |
| 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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