Correlation Between Rio Tinto and Givaudan
Can any of the company-specific risk be diversified away by investing in both Rio Tinto and Givaudan 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 Givaudan 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 Givaudan SA, you can compare the effects of market volatilities on Rio Tinto and Givaudan 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 Givaudan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and Givaudan.
Diversification Opportunities for Rio Tinto and Givaudan
Very weak diversification
The 3 months correlation between Rio and Givaudan is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto PLC and Givaudan SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Givaudan SA 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 Givaudan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Givaudan SA has no effect on the direction of Rio Tinto i.e., Rio Tinto and Givaudan go up and down completely randomly.
Pair Corralation between Rio Tinto and Givaudan
Assuming the 90 days trading horizon Rio Tinto PLC is expected to generate 1.24 times more return on investment than Givaudan. However, Rio Tinto is 1.24 times more volatile than Givaudan SA. It trades about -0.07 of its potential returns per unit of risk. Givaudan SA is currently generating about -0.21 per unit of risk. If you would invest 513,400 in Rio Tinto PLC on October 12, 2024 and sell it today you would lose (31,600) from holding Rio Tinto PLC or give up 6.16% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 98.39% |
| Values | Daily Returns |
Rio Tinto PLC vs. Givaudan SA
Performance |
| Timeline |
| Rio Tinto PLC |
| Givaudan SA |
Rio Tinto and Givaudan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rio Tinto and Givaudan
The main advantage of trading using opposite Rio Tinto and Givaudan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rio Tinto position performs unexpectedly, Givaudan 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 Givaudan will offset losses from the drop in Givaudan's long position.| Rio Tinto vs. Seraphim Space Investment | Rio Tinto vs. FC Investment Trust | Rio Tinto vs. Canadian General Investments | Rio Tinto vs. Trellus Health plc |
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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 Global Correlations module to find global opportunities by holding instruments from different markets.
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