Correlation Between Rio Tinto and Vale SA
Can any of the company-specific risk be diversified away by investing in both Rio Tinto and Vale SA 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 Vale SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Rio Tinto Group and Vale SA, you can compare the effects of market volatilities on Rio Tinto and Vale SA 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 Vale SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and Vale SA.
Diversification Opportunities for Rio Tinto and Vale SA
Almost no diversification
The 3 months correlation between Rio and Vale is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto Group and Vale SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA 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 Group are associated (or correlated) with Vale SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vale SA has no effect on the direction of Rio Tinto i.e., Rio Tinto and Vale SA go up and down completely randomly.
Pair Corralation between Rio Tinto and Vale SA
Assuming the 90 days trading horizon Rio Tinto Group is expected to generate 0.71 times more return on investment than Vale SA. However, Rio Tinto Group is 1.4 times less risky than Vale SA. It trades about -0.07 of its potential returns per unit of risk. Vale SA is currently generating about -0.11 per unit of risk. If you would invest 6,076 in Rio Tinto Group on August 31, 2024 and sell it today you would lose (169.00) from holding Rio Tinto Group or give up 2.78% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Rio Tinto Group vs. Vale SA
Performance |
| Timeline |
| Rio Tinto Group |
| Vale SA |
Rio Tinto and Vale SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rio Tinto and Vale SA
The main advantage of trading using opposite Rio Tinto and Vale SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rio Tinto position performs unexpectedly, Vale SA 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 Vale SA will offset losses from the drop in Vale SA's long position.| Rio Tinto vs. UNITED RENTALS | Rio Tinto vs. COVIVIO HOTELS INH | Rio Tinto vs. EAT WELL INVESTMENT | Rio Tinto vs. United Rentals |
| Vale SA vs. Salesforce | Vale SA vs. YATRA ONLINE DL 0001 | Vale SA vs. Hitachi Construction Machinery | Vale SA vs. WIMFARM SA EO |
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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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