Correlation Between Prime Financial and Rio Tinto
Can any of the company-specific risk be diversified away by investing in both Prime Financial 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 Prime Financial and Rio Tinto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Prime Financial Group and Rio Tinto, you can compare the effects of market volatilities on Prime Financial 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 Prime Financial with a short position of Rio Tinto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prime Financial and Rio Tinto.
Diversification Opportunities for Prime Financial and Rio Tinto
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Prime and Rio is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Prime Financial Group and Rio Tinto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto and Prime Financial 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 Prime Financial Group 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 Prime Financial i.e., Prime Financial and Rio Tinto go up and down completely randomly.
Pair Corralation between Prime Financial and Rio Tinto
Assuming the 90 days trading horizon Prime Financial Group is expected to generate 2.37 times more return on investment than Rio Tinto. However, Prime Financial is 2.37 times more volatile than Rio Tinto. It trades about 0.03 of its potential returns per unit of risk. Rio Tinto is currently generating about 0.03 per unit of risk. If you would invest 18.00 in Prime Financial Group on August 31, 2024 and sell it today you would earn a total of 4.00 from holding Prime Financial Group or generate 22.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Prime Financial Group vs. Rio Tinto
Performance |
| Timeline |
| Prime Financial Group |
| Rio Tinto |
Prime Financial and Rio Tinto Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Prime Financial and Rio Tinto
The main advantage of trading using opposite Prime Financial and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prime Financial 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.| Prime Financial vs. Energy Resources | Prime Financial vs. 88 Energy | Prime Financial vs. Amani Gold | Prime Financial vs. A1 Investments Resources |
| Rio Tinto vs. Autosports Group | Rio Tinto vs. Sandon Capital Investments | Rio Tinto vs. Australian United Investment | Rio Tinto vs. MFF Capital Investments |
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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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