Correlation Between Media and Rio Tinto
Can any of the company-specific risk be diversified away by investing in both Media 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 Media and Rio Tinto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Media and Games and Rio Tinto Group, you can compare the effects of market volatilities on Media 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 Media with a short position of Rio Tinto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Media and Rio Tinto.
Diversification Opportunities for Media and Rio Tinto
Significant diversification
The 3 months correlation between Media and Rio is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Media and Games 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 Media 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 Media and Games 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 Media i.e., Media and Rio Tinto go up and down completely randomly.
Pair Corralation between Media and Rio Tinto
Assuming the 90 days trading horizon Media and Games is expected to under-perform the Rio Tinto. In addition to that, Media is 3.14 times more volatile than Rio Tinto Group. It trades about -0.29 of its total potential returns per unit of risk. Rio Tinto Group is currently generating about -0.43 per unit of volatility. If you would invest 6,149 in Rio Tinto Group on October 10, 2024 and sell it today you would lose (464.00) from holding Rio Tinto Group or give up 7.55% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Media and Games vs. Rio Tinto Group
Performance |
| Timeline |
| Media and Games |
| Rio Tinto Group |
Media and Rio Tinto Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Media and Rio Tinto
The main advantage of trading using opposite Media and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Media 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.| Media vs. Nok Airlines PCL | Media vs. American Airlines Group | Media vs. Aegean Airlines SA | Media vs. Gol Intelligent Airlines |
| Rio Tinto vs. Tower Semiconductor | Rio Tinto vs. NXP Semiconductors NV | Rio Tinto vs. DATAGROUP SE | Rio Tinto vs. Taiwan Semiconductor Manufacturing |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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