Correlation Between Gold Fields and Rio2
Can any of the company-specific risk be diversified away by investing in both Gold Fields and Rio2 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 Gold Fields and Rio2 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Gold Fields Ltd and Rio2 Limited, you can compare the effects of market volatilities on Gold Fields and Rio2 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 Gold Fields with a short position of Rio2. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gold Fields and Rio2.
Diversification Opportunities for Gold Fields and Rio2
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Gold and Rio2 is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Gold Fields Ltd and Rio2 Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio2 Limited and Gold Fields 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 Gold Fields Ltd are associated (or correlated) with Rio2. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rio2 Limited has no effect on the direction of Gold Fields i.e., Gold Fields and Rio2 go up and down completely randomly.
Pair Corralation between Gold Fields and Rio2
Considering the 90-day investment horizon Gold Fields is expected to generate 11.71 times less return on investment than Rio2. But when comparing it to its historical volatility, Gold Fields Ltd is 1.61 times less risky than Rio2. It trades about 0.01 of its potential returns per unit of risk. Rio2 Limited is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 15.00 in Rio2 Limited on August 31, 2024 and sell it today you would earn a total of 33.00 from holding Rio2 Limited or generate 220.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.73% |
| Values | Daily Returns |
Gold Fields Ltd vs. Rio2 Limited
Performance |
| Timeline |
| Gold Fields |
| Rio2 Limited |
Gold Fields and Rio2 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Gold Fields and Rio2
The main advantage of trading using opposite Gold Fields and Rio2 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gold Fields position performs unexpectedly, Rio2 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 Rio2 will offset losses from the drop in Rio2's long position.| Gold Fields vs. Agnico Eagle Mines | Gold Fields vs. Kinross Gold | Gold Fields vs. Harmony Gold Mining | Gold Fields vs. Franco Nevada |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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