Correlation Between Rio Tinto and Freeport McMoRan
Can any of the company-specific risk be diversified away by investing in both Rio Tinto and Freeport McMoRan 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 Freeport McMoRan 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 Freeport McMoRan, you can compare the effects of market volatilities on Rio Tinto and Freeport McMoRan 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 Freeport McMoRan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and Freeport McMoRan.
Diversification Opportunities for Rio Tinto and Freeport McMoRan
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Rio and Freeport is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto PLC and Freeport McMoRan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freeport McMoRan 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 Freeport McMoRan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freeport McMoRan has no effect on the direction of Rio Tinto i.e., Rio Tinto and Freeport McMoRan go up and down completely randomly.
Pair Corralation between Rio Tinto and Freeport McMoRan
Assuming the 90 days trading horizon Rio Tinto PLC is expected to generate 0.58 times more return on investment than Freeport McMoRan. However, Rio Tinto PLC is 1.72 times less risky than Freeport McMoRan. It trades about -0.05 of its potential returns per unit of risk. Freeport McMoRan is currently generating about -0.06 per unit of risk. If you would invest 530,607 in Rio Tinto PLC on September 24, 2024 and sell it today you would lose (63,807) from holding Rio Tinto PLC or give up 12.03% 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. Freeport McMoRan
Performance |
| Timeline |
| Rio Tinto PLC |
| Freeport McMoRan |
Rio Tinto and Freeport McMoRan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rio Tinto and Freeport McMoRan
The main advantage of trading using opposite Rio Tinto and Freeport McMoRan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rio Tinto position performs unexpectedly, Freeport McMoRan 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 Freeport McMoRan will offset losses from the drop in Freeport McMoRan's long position.| Rio Tinto vs. Givaudan SA | Rio Tinto vs. Antofagasta PLC | Rio Tinto vs. Ferrexpo PLC | Rio Tinto vs. Atalaya Mining |
| Freeport McMoRan vs. Lowland Investment Co | Freeport McMoRan vs. Supermarket Income REIT | Freeport McMoRan vs. Aberdeen Diversified Income | Freeport McMoRan vs. Bankers Investment Trust |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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