Correlation Between Rio Tinto and South32 ADR
Can any of the company-specific risk be diversified away by investing in both Rio Tinto and South32 ADR 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 South32 ADR 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 South32 ADR, you can compare the effects of market volatilities on Rio Tinto and South32 ADR 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 South32 ADR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and South32 ADR.
Diversification Opportunities for Rio Tinto and South32 ADR
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Rio and South32 is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto ADR and South32 ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on South32 ADR 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 South32 ADR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of South32 ADR has no effect on the direction of Rio Tinto i.e., Rio Tinto and South32 ADR go up and down completely randomly.
Pair Corralation between Rio Tinto and South32 ADR
Considering the 90-day investment horizon Rio Tinto ADR is expected to under-perform the South32 ADR. But the stock apears to be less risky and, when comparing its historical volatility, Rio Tinto ADR is 1.62 times less risky than South32 ADR. The stock trades about -0.09 of its potential returns per unit of risk. The South32 ADR is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 1,224 in South32 ADR on August 25, 2024 and sell it today you would earn a total of 20.00 from holding South32 ADR or generate 1.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Rio Tinto ADR vs. South32 ADR
Performance |
| Timeline |
| Rio Tinto ADR |
| South32 ADR |
Rio Tinto and South32 ADR Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rio Tinto and South32 ADR
The main advantage of trading using opposite Rio Tinto and South32 ADR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rio Tinto position performs unexpectedly, South32 ADR 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 South32 ADR will offset losses from the drop in South32 ADR'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 |
| South32 ADR vs. Liontown Resources Limited | South32 ADR vs. IGO Limited | South32 ADR vs. Anglo American PLC | South32 ADR vs. IGO Limited |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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