Correlation Between Lithium Americas and Rio Tinto
Can any of the company-specific risk be diversified away by investing in both Lithium Americas 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 Lithium Americas and Rio Tinto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lithium Americas Corp and Rio Tinto ADR, you can compare the effects of market volatilities on Lithium Americas 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 Lithium Americas with a short position of Rio Tinto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lithium Americas and Rio Tinto.
Diversification Opportunities for Lithium Americas and Rio Tinto
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Lithium and Rio is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Lithium Americas Corp 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 Lithium Americas 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 Lithium Americas Corp 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 Lithium Americas i.e., Lithium Americas and Rio Tinto go up and down completely randomly.
Pair Corralation between Lithium Americas and Rio Tinto
Considering the 90-day investment horizon Lithium Americas Corp is expected to under-perform the Rio Tinto. In addition to that, Lithium Americas is 3.27 times more volatile than Rio Tinto ADR. It trades about -0.06 of its total potential returns per unit of risk. Rio Tinto ADR is currently generating about 0.0 per unit of volatility. If you would invest 6,502 in Rio Tinto ADR on November 2, 2024 and sell it today you would lose (411.00) from holding Rio Tinto ADR or give up 6.32% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 90.28% |
| Values | Daily Returns |
Lithium Americas Corp vs. Rio Tinto ADR
Performance |
| Timeline |
| Lithium Americas Corp |
| Rio Tinto ADR |
Lithium Americas and Rio Tinto Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lithium Americas and Rio Tinto
The main advantage of trading using opposite Lithium Americas and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lithium Americas 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.| Lithium Americas vs. Sigma Lithium Resources | Lithium Americas vs. Standard Lithium | Lithium Americas vs. Sayona Mining Limited | Lithium Americas vs. MP Materials 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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