Correlation Between Rio Tinto and HSBC Holdings
Can any of the company-specific risk be diversified away by investing in both Rio Tinto and HSBC Holdings 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 HSBC Holdings 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 HSBC Holdings PLC, you can compare the effects of market volatilities on Rio Tinto and HSBC Holdings 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 HSBC Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and HSBC Holdings.
Diversification Opportunities for Rio Tinto and HSBC Holdings
-0.44 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Rio and HSBC is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto PLC and HSBC Holdings PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HSBC Holdings PLC 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 HSBC Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HSBC Holdings PLC has no effect on the direction of Rio Tinto i.e., Rio Tinto and HSBC Holdings go up and down completely randomly.
Pair Corralation between Rio Tinto and HSBC Holdings
Assuming the 90 days trading horizon Rio Tinto PLC is expected to under-perform the HSBC Holdings. In addition to that, Rio Tinto is 1.14 times more volatile than HSBC Holdings PLC. It trades about -0.01 of its total potential returns per unit of risk. HSBC Holdings PLC is currently generating about 0.09 per unit of volatility. If you would invest 44,784 in HSBC Holdings PLC on September 23, 2024 and sell it today you would earn a total of 31,296 from holding HSBC Holdings PLC or generate 69.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 99.4% |
| Values | Daily Returns |
Rio Tinto PLC vs. HSBC Holdings PLC
Performance |
| Timeline |
| Rio Tinto PLC |
| HSBC Holdings PLC |
Rio Tinto and HSBC Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rio Tinto and HSBC Holdings
The main advantage of trading using opposite Rio Tinto and HSBC Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rio Tinto position performs unexpectedly, HSBC Holdings 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 HSBC Holdings will offset losses from the drop in HSBC Holdings' long position.| Rio Tinto vs. Givaudan SA | Rio Tinto vs. Antofagasta PLC | Rio Tinto vs. Ferrexpo PLC | Rio Tinto vs. Atalaya Mining |
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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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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