Correlation Between Rio Tinto and STMicroelectronics
Can any of the company-specific risk be diversified away by investing in both Rio Tinto and STMicroelectronics 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 STMicroelectronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Rio Tinto PLC and STMicroelectronics NV, you can compare the effects of market volatilities on Rio Tinto and STMicroelectronics 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 STMicroelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and STMicroelectronics.
Diversification Opportunities for Rio Tinto and STMicroelectronics
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Rio and STMicroelectronics is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto PLC and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics 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 PLC are associated (or correlated) with STMicroelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STMicroelectronics has no effect on the direction of Rio Tinto i.e., Rio Tinto and STMicroelectronics go up and down completely randomly.
Pair Corralation between Rio Tinto and STMicroelectronics
Assuming the 90 days trading horizon Rio Tinto PLC is expected to under-perform the STMicroelectronics. But the stock apears to be less risky and, when comparing its historical volatility, Rio Tinto PLC is 1.31 times less risky than STMicroelectronics. The stock trades about -0.27 of its potential returns per unit of risk. The STMicroelectronics NV is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest 2,445 in STMicroelectronics NV on September 24, 2024 and sell it today you would lose (96.00) from holding STMicroelectronics NV or give up 3.93% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Rio Tinto PLC vs. STMicroelectronics NV
Performance |
| Timeline |
| Rio Tinto PLC |
| STMicroelectronics |
Rio Tinto and STMicroelectronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rio Tinto and STMicroelectronics
The main advantage of trading using opposite Rio Tinto and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rio Tinto position performs unexpectedly, STMicroelectronics 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 STMicroelectronics will offset losses from the drop in STMicroelectronics' long position.| Rio Tinto vs. Givaudan SA | Rio Tinto vs. Antofagasta PLC | Rio Tinto vs. Ferrexpo PLC | Rio Tinto vs. Atalaya Mining |
| STMicroelectronics vs. Marks and Spencer | STMicroelectronics vs. Boston Scientific Corp | STMicroelectronics vs. OTP Bank Nyrt | STMicroelectronics vs. Rio Tinto PLC |
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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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