Correlation Between Rio Tinto and Lotus Resources
Can any of the company-specific risk be diversified away by investing in both Rio Tinto and Lotus 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 Lotus Resources 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 Lotus Resources Limited, you can compare the effects of market volatilities on Rio Tinto and Lotus 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 Lotus Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and Lotus Resources.
Diversification Opportunities for Rio Tinto and Lotus Resources
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Rio and Lotus is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto Group and Lotus Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lotus 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 Group are associated (or correlated) with Lotus Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lotus Resources has no effect on the direction of Rio Tinto i.e., Rio Tinto and Lotus Resources go up and down completely randomly.
Pair Corralation between Rio Tinto and Lotus Resources
Assuming the 90 days horizon Rio Tinto Group is expected to under-perform the Lotus Resources. But the pink sheet apears to be less risky and, when comparing its historical volatility, Rio Tinto Group is 1.95 times less risky than Lotus Resources. The pink sheet trades about -0.16 of its potential returns per unit of risk. The Lotus Resources Limited is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest 20.00 in Lotus Resources Limited on August 28, 2024 and sell it today you would lose (4.00) from holding Lotus Resources Limited or give up 20.0% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Rio Tinto Group vs. Lotus Resources Limited
Performance |
| Timeline |
| Rio Tinto Group |
| Lotus Resources |
Rio Tinto and Lotus Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rio Tinto and Lotus Resources
The main advantage of trading using opposite Rio Tinto and Lotus Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rio Tinto position performs unexpectedly, Lotus 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 Lotus Resources will offset losses from the drop in Lotus Resources' 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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