Correlation Between Rio Tinto and BHP
Can any of the company-specific risk be diversified away by investing in both Rio Tinto and BHP 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 BHP 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 BHP Group, you can compare the effects of market volatilities on Rio Tinto and BHP 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 BHP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and BHP.
Diversification Opportunities for Rio Tinto and BHP
Poor diversification
The 3 months correlation between Rio and BHP is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto Group and BHP Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BHP Group 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 BHP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BHP Group has no effect on the direction of Rio Tinto i.e., Rio Tinto and BHP go up and down completely randomly.
Pair Corralation between Rio Tinto and BHP
If you would invest 113,920 in BHP Group on August 26, 2024 and sell it today you would earn a total of 0.00 from holding BHP Group or generate 0.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Rio Tinto Group vs. BHP Group
Performance |
| Timeline |
| Rio Tinto Group |
| BHP Group |
Rio Tinto and BHP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rio Tinto and BHP
The main advantage of trading using opposite Rio Tinto and BHP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rio Tinto position performs unexpectedly, BHP 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 BHP will offset losses from the drop in BHP's long position.| Rio Tinto vs. Vale SA | Rio Tinto vs. Glencore plc | Rio Tinto vs. Cleveland Cliffs | Rio Tinto vs. Minera Frisco SAB |
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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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