Correlation Between Rio Tinto and Australian Agri
Can any of the company-specific risk be diversified away by investing in both Rio Tinto and Australian Agri 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 Rio Tinto and Australian Agri into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Rio Tinto and Australian Agri Projects, you can compare the effects of market volatilities on Rio Tinto and Australian Agri 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 Rio Tinto with a short position of Australian Agri. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and Australian Agri.
Diversification Opportunities for Rio Tinto and Australian Agri
0.07 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Rio and Australian is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto and Australian Agri Projects in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Australian Agri Projects and Rio Tinto 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 Rio Tinto are associated (or correlated) with Australian Agri. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Australian Agri Projects has no effect on the direction of Rio Tinto i.e., Rio Tinto and Australian Agri go up and down completely randomly.
Pair Corralation between Rio Tinto and Australian Agri
Assuming the 90 days trading horizon Rio Tinto is expected to generate 0.34 times more return on investment than Australian Agri. However, Rio Tinto is 2.94 times less risky than Australian Agri. It trades about 0.07 of its potential returns per unit of risk. Australian Agri Projects is currently generating about -0.03 per unit of risk. If you would invest 11,740 in Rio Tinto on October 20, 2024 and sell it today you would earn a total of 134.00 from holding Rio Tinto or generate 1.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Rio Tinto vs. Australian Agri Projects
Performance |
| Timeline |
| Rio Tinto |
| Australian Agri Projects |
Rio Tinto and Australian Agri Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rio Tinto and Australian Agri
The main advantage of trading using opposite Rio Tinto and Australian Agri positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rio Tinto position performs unexpectedly, Australian Agri 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 Australian Agri will offset losses from the drop in Australian Agri's long position.| Rio Tinto vs. Bio Gene Technology | Rio Tinto vs. Bailador Technology Invest | Rio Tinto vs. Mayfield Childcare | Rio Tinto vs. Aurelia Metals |
| Australian Agri vs. Aneka Tambang Tbk | Australian Agri vs. BHP Group Limited | Australian Agri vs. Rio Tinto | Australian Agri vs. Macquarie Group Ltd |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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