Correlation Between Rio Tinto and Metals X
Can any of the company-specific risk be diversified away by investing in both Rio Tinto and Metals X 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 Metals X 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 Metals X Limited, you can compare the effects of market volatilities on Rio Tinto and Metals X 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 Metals X. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and Metals X.
Diversification Opportunities for Rio Tinto and Metals X
Poor diversification
The 3 months correlation between Rio and Metals is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto ADR and Metals X Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metals X Limited 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 Metals X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metals X Limited has no effect on the direction of Rio Tinto i.e., Rio Tinto and Metals X go up and down completely randomly.
Pair Corralation between Rio Tinto and Metals X
Considering the 90-day investment horizon Rio Tinto ADR is expected to under-perform the Metals X. But the stock apears to be less risky and, when comparing its historical volatility, Rio Tinto ADR is 3.56 times less risky than Metals X. The stock trades about -0.05 of its potential returns per unit of risk. The Metals X Limited is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest 31.00 in Metals X Limited on August 25, 2024 and sell it today you would lose (4.00) from holding Metals X Limited or give up 12.9% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Rio Tinto ADR vs. Metals X Limited
Performance |
| Timeline |
| Rio Tinto ADR |
| Metals X Limited |
Rio Tinto and Metals X Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rio Tinto and Metals X
The main advantage of trading using opposite Rio Tinto and Metals X positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rio Tinto position performs unexpectedly, Metals X 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 Metals X will offset losses from the drop in Metals X'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 |
| Metals X vs. Norra Metals Corp | Metals X vs. ZincX Resources Corp | Metals X vs. Nuinsco Resources Limited | Metals X vs. South Star Battery |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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