Correlation Between Fortescue Metals and Rio Tinto
Can any of the company-specific risk be diversified away by investing in both Fortescue Metals 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 Fortescue Metals and Rio Tinto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fortescue Metals Group and Rio Tinto Group, you can compare the effects of market volatilities on Fortescue Metals 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 Fortescue Metals with a short position of Rio Tinto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fortescue Metals and Rio Tinto.
Diversification Opportunities for Fortescue Metals and Rio Tinto
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Fortescue and Rio is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Fortescue Metals Group 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 Fortescue Metals 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 Fortescue Metals Group 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 Fortescue Metals i.e., Fortescue Metals and Rio Tinto go up and down completely randomly.
Pair Corralation between Fortescue Metals and Rio Tinto
Assuming the 90 days horizon Fortescue Metals Group is expected to generate 0.9 times more return on investment than Rio Tinto. However, Fortescue Metals Group is 1.11 times less risky than Rio Tinto. It trades about 0.04 of its potential returns per unit of risk. Rio Tinto Group is currently generating about -0.01 per unit of risk. If you would invest 2,334 in Fortescue Metals Group on October 20, 2024 and sell it today you would earn a total of 64.00 from holding Fortescue Metals Group or generate 2.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fortescue Metals Group vs. Rio Tinto Group
Performance |
| Timeline |
| Fortescue Metals |
| Rio Tinto Group |
Fortescue Metals and Rio Tinto Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fortescue Metals and Rio Tinto
The main advantage of trading using opposite Fortescue Metals and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fortescue Metals 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.| Fortescue Metals vs. IGO Limited | Fortescue Metals vs. Qubec Nickel Corp | Fortescue Metals vs. IGO Limited | Fortescue Metals vs. Hannan Metals |
| Rio Tinto vs. BHP Group Limited | Rio Tinto vs. Green Shift Commodities | Rio Tinto vs. Glencore PLC | Rio Tinto vs. Electra Battery Materials |
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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