Correlation Between Rio Tinto and Tower Resources
Can any of the company-specific risk be diversified away by investing in both Rio Tinto and Tower Resources 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 Tower Resources 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 Tower Resources, you can compare the effects of market volatilities on Rio Tinto and Tower Resources 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 Tower Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and Tower Resources.
Diversification Opportunities for Rio Tinto and Tower Resources
0.08 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Rio and Tower is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto ADR and Tower Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tower 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 Tower Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tower Resources has no effect on the direction of Rio Tinto i.e., Rio Tinto and Tower Resources go up and down completely randomly.
Pair Corralation between Rio Tinto and Tower Resources
Considering the 90-day investment horizon Rio Tinto is expected to generate 1.46 times less return on investment than Tower Resources. But when comparing it to its historical volatility, Rio Tinto ADR is 4.85 times less risky than Tower Resources. It trades about 0.13 of its potential returns per unit of risk. Tower Resources is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 9.90 in Tower Resources on November 4, 2024 and sell it today you would earn a total of 0.10 from holding Tower Resources or generate 1.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.0% |
| Values | Daily Returns |
Rio Tinto ADR vs. Tower Resources
Performance |
| Timeline |
| Rio Tinto ADR |
| Tower Resources |
Rio Tinto and Tower Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rio Tinto and Tower Resources
The main advantage of trading using opposite Rio Tinto and Tower Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rio Tinto position performs unexpectedly, Tower Resources 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 Tower Resources will offset losses from the drop in Tower Resources' 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 |
| Tower Resources vs. Sassy Resources | Tower Resources vs. Pan Global Resources | Tower Resources vs. Metals X Limited | Tower Resources vs. Nevada King Gold |
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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