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
Very poor diversification
The 3 months correlation between Rio and Vale is 0.87. 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 is expected to generate 5.33 times less return on investment than Vale SA. But when comparing it to its historical volatility, Rio Tinto Group is 1.28 times less risky than Vale SA. It trades about 0.01 of its potential returns per unit of risk. Vale SA is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 643.00 in Vale SA on September 2, 2024 and sell it today you would earn a total of 309.00 from holding Vale SA or generate 48.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | 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. BHP Group Limited | Rio Tinto vs. Rio Tinto Group | Rio Tinto vs. Vale SA | Rio Tinto vs. Vale SA |
| Vale SA vs. QURATE RETAIL INC | Vale SA vs. HOCHSCHILD MINING | Vale SA vs. Retail Estates NV | Vale SA vs. Boyd Gaming |
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 Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.
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