Correlation Between KWG Resources and Rio Tinto
Can any of the company-specific risk be diversified away by investing in both KWG Resources 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 KWG Resources and Rio Tinto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between KWG Resources and Rio Tinto ADR, you can compare the effects of market volatilities on KWG Resources 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 KWG Resources with a short position of Rio Tinto. Check out your portfolio center. Please also check ongoing floating volatility patterns of KWG Resources and Rio Tinto.
Diversification Opportunities for KWG Resources and Rio Tinto
0.32 | Correlation Coefficient |
Weak diversification
The 3 months correlation between KWG and Rio is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding KWG Resources and Rio Tinto ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto ADR and KWG Resources 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 KWG Resources 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 ADR has no effect on the direction of KWG Resources i.e., KWG Resources and Rio Tinto go up and down completely randomly.
Pair Corralation between KWG Resources and Rio Tinto
Assuming the 90 days horizon KWG Resources is expected to under-perform the Rio Tinto. In addition to that, KWG Resources is 5.05 times more volatile than Rio Tinto ADR. It trades about -0.03 of its total potential returns per unit of risk. Rio Tinto ADR is currently generating about -0.09 per unit of volatility. If you would invest 6,461 in Rio Tinto ADR on August 25, 2024 and sell it today you would lose (227.50) from holding Rio Tinto ADR or give up 3.52% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
KWG Resources vs. Rio Tinto ADR
Performance |
| Timeline |
| KWG Resources |
| Rio Tinto ADR |
KWG Resources and Rio Tinto Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with KWG Resources and Rio Tinto
The main advantage of trading using opposite KWG Resources and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KWG Resources 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.| KWG Resources vs. Metals X Limited | KWG Resources vs. Largo Resources | KWG Resources vs. Sigma Lithium Resources | KWG Resources vs. Horizon Minerals Corp |
| Rio Tinto vs. Vale SA ADR | Rio Tinto vs. Teck Resources Ltd | Rio Tinto vs. MP Materials Corp | Rio Tinto vs. Lithium Americas Corp |
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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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