Correlation Between Rio Tinto and African Rainbow
Can any of the company-specific risk be diversified away by investing in both Rio Tinto and African Rainbow 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 African Rainbow into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Rio Tinto ADR and African Rainbow Minerals, you can compare the effects of market volatilities on Rio Tinto and African Rainbow 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 African Rainbow. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and African Rainbow.
Diversification Opportunities for Rio Tinto and African Rainbow
-0.74 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Rio and African is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto ADR and African Rainbow Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on African Rainbow Minerals 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 ADR are associated (or correlated) with African Rainbow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of African Rainbow Minerals has no effect on the direction of Rio Tinto i.e., Rio Tinto and African Rainbow go up and down completely randomly.
Pair Corralation between Rio Tinto and African Rainbow
Considering the 90-day investment horizon Rio Tinto ADR is expected to under-perform the African Rainbow. But the stock apears to be less risky and, when comparing its historical volatility, Rio Tinto ADR is 2.73 times less risky than African Rainbow. The stock trades about -0.03 of its potential returns per unit of risk. The African Rainbow Minerals is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest 1,150 in African Rainbow Minerals on September 1, 2024 and sell it today you would earn a total of 70.00 from holding African Rainbow Minerals or generate 6.09% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 3.97% |
| Values | Daily Returns |
Rio Tinto ADR vs. African Rainbow Minerals
Performance |
| Timeline |
| Rio Tinto ADR |
| African Rainbow Minerals |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Rio Tinto and African Rainbow Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rio Tinto and African Rainbow
The main advantage of trading using opposite Rio Tinto and African Rainbow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rio Tinto position performs unexpectedly, African Rainbow 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 African Rainbow will offset losses from the drop in African Rainbow's long position.| Rio Tinto vs. NioCorp Developments Ltd | Rio Tinto vs. Teck Resources Ltd | Rio Tinto vs. Sigma Lithium Resources | Rio Tinto vs. MP Materials Corp |
| African Rainbow vs. Ivanhoe Mines | African Rainbow vs. Glencore PLC | African Rainbow vs. Asia Broadband | African Rainbow vs. Rio Tinto Group |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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