Correlation Between Northern Star and Rio Tinto
Can any of the company-specific risk be diversified away by investing in both Northern Star 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 Northern Star and Rio Tinto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northern Star Resources and Rio Tinto, you can compare the effects of market volatilities on Northern Star 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 Northern Star with a short position of Rio Tinto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Star and Rio Tinto.
Diversification Opportunities for Northern Star and Rio Tinto
0.57 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Northern and Rio is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Northern Star Resources and Rio Tinto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto and Northern Star 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 Northern Star 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 has no effect on the direction of Northern Star i.e., Northern Star and Rio Tinto go up and down completely randomly.
Pair Corralation between Northern Star and Rio Tinto
Assuming the 90 days trading horizon Northern Star Resources is expected to generate 1.89 times more return on investment than Rio Tinto. However, Northern Star is 1.89 times more volatile than Rio Tinto. It trades about 0.05 of its potential returns per unit of risk. Rio Tinto is currently generating about -0.07 per unit of risk. If you would invest 1,728 in Northern Star Resources on August 29, 2024 and sell it today you would earn a total of 34.00 from holding Northern Star Resources or generate 1.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northern Star Resources vs. Rio Tinto
Performance |
| Timeline |
| Northern Star Resources |
| Rio Tinto |
Northern Star and Rio Tinto Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Star and Rio Tinto
The main advantage of trading using opposite Northern Star and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Star 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.| Northern Star vs. Hutchison Telecommunications | Northern Star vs. National Storage REIT | Northern Star vs. ACDC Metals | Northern Star vs. MotorCycle Holdings |
| Rio Tinto vs. Northern Star Resources | Rio Tinto vs. Evolution Mining | Rio Tinto vs. Bluescope Steel | Rio Tinto vs. Sandfire Resources NL |
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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