Correlation Between Rio Tinto and Lynas Rare
Can any of the company-specific risk be diversified away by investing in both Rio Tinto and Lynas Rare 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 Lynas Rare 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 Lynas Rare Earths, you can compare the effects of market volatilities on Rio Tinto and Lynas Rare 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 Lynas Rare. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and Lynas Rare.
Diversification Opportunities for Rio Tinto and Lynas Rare
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Rio and Lynas is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto ADR and Lynas Rare Earths in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lynas Rare Earths 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 Lynas Rare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lynas Rare Earths has no effect on the direction of Rio Tinto i.e., Rio Tinto and Lynas Rare go up and down completely randomly.
Pair Corralation between Rio Tinto and Lynas Rare
Considering the 90-day investment horizon Rio Tinto ADR is expected to generate 0.73 times more return on investment than Lynas Rare. However, Rio Tinto ADR is 1.36 times less risky than Lynas Rare. It trades about -0.18 of its potential returns per unit of risk. Lynas Rare Earths is currently generating about -0.25 per unit of risk. If you would invest 6,658 in Rio Tinto ADR on August 30, 2024 and sell it today you would lose (426.00) from holding Rio Tinto ADR or give up 6.4% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Rio Tinto ADR vs. Lynas Rare Earths
Performance |
| Timeline |
| Rio Tinto ADR |
| Lynas Rare Earths |
Rio Tinto and Lynas Rare Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rio Tinto and Lynas Rare
The main advantage of trading using opposite Rio Tinto and Lynas Rare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rio Tinto position performs unexpectedly, Lynas Rare 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 Lynas Rare will offset losses from the drop in Lynas Rare's long position.| Rio Tinto vs. Vale SA ADR | Rio Tinto vs. Teck Resources Ltd | Rio Tinto vs. MP Materials Corp | Rio Tinto vs. Lithium Americas Corp |
| Lynas Rare vs. Arafura Resources | Lynas Rare vs. Texas Rare Earth | Lynas Rare vs. Ucore Rare Metals | Lynas Rare vs. Lynas Rare Earths |
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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