Correlation Between Rio Tinto and Northern Shield
Can any of the company-specific risk be diversified away by investing in both Rio Tinto and Northern Shield 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 Northern Shield 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 Northern Shield Resources, you can compare the effects of market volatilities on Rio Tinto and Northern Shield 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 Northern Shield. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and Northern Shield.
Diversification Opportunities for Rio Tinto and Northern Shield
0.14 | Correlation Coefficient |
Average diversification
The 3 months correlation between Rio and Northern is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto ADR and Northern Shield Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Shield Resources 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 Northern Shield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Shield Resources has no effect on the direction of Rio Tinto i.e., Rio Tinto and Northern Shield go up and down completely randomly.
Pair Corralation between Rio Tinto and Northern Shield
Considering the 90-day investment horizon Rio Tinto ADR is expected to under-perform the Northern Shield. But the stock apears to be less risky and, when comparing its historical volatility, Rio Tinto ADR is 33.02 times less risky than Northern Shield. The stock trades about -0.01 of its potential returns per unit of risk. The Northern Shield Resources is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 4.00 in Northern Shield Resources on October 22, 2024 and sell it today you would earn a total of 11.00 from holding Northern Shield Resources or generate 275.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Rio Tinto ADR vs. Northern Shield Resources
Performance |
| Timeline |
| Rio Tinto ADR |
| Northern Shield Resources |
Rio Tinto and Northern Shield Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rio Tinto and Northern Shield
The main advantage of trading using opposite Rio Tinto and Northern Shield positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rio Tinto position performs unexpectedly, Northern Shield 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 Northern Shield will offset losses from the drop in Northern Shield'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 |
| Northern Shield vs. BHP Group Limited | Northern Shield vs. Glencore PLC ADR | Northern Shield vs. Vale SA ADR | Northern Shield vs. Rio Tinto ADR |
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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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