Correlation Between Rio Tinto and G8 Education
Can any of the company-specific risk be diversified away by investing in both Rio Tinto and G8 Education 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 G8 Education into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Rio Tinto and G8 Education, you can compare the effects of market volatilities on Rio Tinto and G8 Education 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 G8 Education. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and G8 Education.
Diversification Opportunities for Rio Tinto and G8 Education
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Rio and GEM is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto and G8 Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on G8 Education 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 G8 Education. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of G8 Education has no effect on the direction of Rio Tinto i.e., Rio Tinto and G8 Education go up and down completely randomly.
Pair Corralation between Rio Tinto and G8 Education
Assuming the 90 days trading horizon Rio Tinto is expected to generate 1.2 times less return on investment than G8 Education. In addition to that, Rio Tinto is 1.0 times more volatile than G8 Education. It trades about 0.06 of its total potential returns per unit of risk. G8 Education is currently generating about 0.07 per unit of volatility. If you would invest 123.00 in G8 Education on August 28, 2024 and sell it today you would earn a total of 8.00 from holding G8 Education or generate 6.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Rio Tinto vs. G8 Education
Performance |
| Timeline |
| Rio Tinto |
| G8 Education |
Rio Tinto and G8 Education Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rio Tinto and G8 Education
The main advantage of trading using opposite Rio Tinto and G8 Education positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rio Tinto position performs unexpectedly, G8 Education 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 G8 Education will offset losses from the drop in G8 Education's long position.| Rio Tinto vs. Perpetual Credit Income | Rio Tinto vs. Finexia Financial Group | Rio Tinto vs. Prime Financial Group | Rio Tinto vs. Ironbark Capital |
| G8 Education vs. Aneka Tambang Tbk | G8 Education vs. BHP Group Limited | G8 Education vs. Rio Tinto | G8 Education 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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