Correlation Between Rio Tinto and L1 Long
Can any of the company-specific risk be diversified away by investing in both Rio Tinto and L1 Long 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 L1 Long into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Rio Tinto and L1 Long Short, you can compare the effects of market volatilities on Rio Tinto and L1 Long 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 L1 Long. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and L1 Long.
Diversification Opportunities for Rio Tinto and L1 Long
Poor diversification
The 3 months correlation between Rio and LSF is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto and L1 Long Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on L1 Long Short 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 L1 Long. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of L1 Long Short has no effect on the direction of Rio Tinto i.e., Rio Tinto and L1 Long go up and down completely randomly.
Pair Corralation between Rio Tinto and L1 Long
Assuming the 90 days trading horizon Rio Tinto is expected to generate 0.81 times more return on investment than L1 Long. However, Rio Tinto is 1.24 times less risky than L1 Long. It trades about -0.02 of its potential returns per unit of risk. L1 Long Short is currently generating about -0.05 per unit of risk. If you would invest 11,931 in Rio Tinto on September 1, 2024 and sell it today you would lose (107.00) from holding Rio Tinto or give up 0.9% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Rio Tinto vs. L1 Long Short
Performance |
| Timeline |
| Rio Tinto |
| L1 Long Short |
Rio Tinto and L1 Long Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rio Tinto and L1 Long
The main advantage of trading using opposite Rio Tinto and L1 Long positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rio Tinto position performs unexpectedly, L1 Long 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 L1 Long will offset losses from the drop in L1 Long's long position.| Rio Tinto vs. Aristocrat Leisure | Rio Tinto vs. Magellan Financial Group | Rio Tinto vs. Pioneer Credit | Rio Tinto vs. My Foodie Box |
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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