Correlation Between Rio Tinto and CAT Strategic
Can any of the company-specific risk be diversified away by investing in both Rio Tinto and CAT Strategic 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 CAT Strategic 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 CAT Strategic Metals, you can compare the effects of market volatilities on Rio Tinto and CAT Strategic 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 CAT Strategic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and CAT Strategic.
Diversification Opportunities for Rio Tinto and CAT Strategic
-0.34 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Rio and CAT is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto Group and CAT Strategic Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CAT Strategic Metals 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 CAT Strategic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CAT Strategic Metals has no effect on the direction of Rio Tinto i.e., Rio Tinto and CAT Strategic go up and down completely randomly.
Pair Corralation between Rio Tinto and CAT Strategic
Assuming the 90 days horizon Rio Tinto Group is expected to under-perform the CAT Strategic. But the pink sheet apears to be less risky and, when comparing its historical volatility, Rio Tinto Group is 25.21 times less risky than CAT Strategic. The pink sheet trades about -0.07 of its potential returns per unit of risk. The CAT Strategic Metals is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 0.14 in CAT Strategic Metals on August 29, 2024 and sell it today you would earn a total of 0.26 from holding CAT Strategic Metals or generate 185.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Rio Tinto Group vs. CAT Strategic Metals
Performance |
| Timeline |
| Rio Tinto Group |
| CAT Strategic Metals |
Rio Tinto and CAT Strategic Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rio Tinto and CAT Strategic
The main advantage of trading using opposite Rio Tinto and CAT Strategic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rio Tinto position performs unexpectedly, CAT Strategic 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 CAT Strategic will offset losses from the drop in CAT Strategic's long position.| Rio Tinto vs. Silver Dollar Resources | Rio Tinto vs. BHP Group Limited | Rio Tinto vs. Doubleview Gold Corp | Rio Tinto vs. Anglo American plc |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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