Correlation Between Rio Tinto and China Molybdenum
Can any of the company-specific risk be diversified away by investing in both Rio Tinto and China Molybdenum 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 China Molybdenum 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 China Molybdenum Co, you can compare the effects of market volatilities on Rio Tinto and China Molybdenum 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 China Molybdenum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and China Molybdenum.
Diversification Opportunities for Rio Tinto and China Molybdenum
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Rio and China is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto Group and China Molybdenum Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Molybdenum 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 China Molybdenum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Molybdenum has no effect on the direction of Rio Tinto i.e., Rio Tinto and China Molybdenum go up and down completely randomly.
Pair Corralation between Rio Tinto and China Molybdenum
Assuming the 90 days horizon Rio Tinto Group is expected to generate 0.5 times more return on investment than China Molybdenum. However, Rio Tinto Group is 2.0 times less risky than China Molybdenum. It trades about -0.12 of its potential returns per unit of risk. China Molybdenum Co is currently generating about -0.2 per unit of risk. If you would invest 6,513 in Rio Tinto Group on September 3, 2024 and sell it today you would lose (372.00) from holding Rio Tinto Group or give up 5.71% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Rio Tinto Group vs. China Molybdenum Co
Performance |
| Timeline |
| Rio Tinto Group |
| China Molybdenum |
Rio Tinto and China Molybdenum Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rio Tinto and China Molybdenum
The main advantage of trading using opposite Rio Tinto and China Molybdenum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rio Tinto position performs unexpectedly, China Molybdenum 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 China Molybdenum will offset losses from the drop in China Molybdenum's long position.| Rio Tinto vs. BHP Group Limited | Rio Tinto vs. Green Shift Commodities | Rio Tinto vs. Glencore PLC | Rio Tinto vs. Electra Battery Materials |
| China Molybdenum vs. Ardea Resources Limited | China Molybdenum vs. Centaurus Metals Limited | China Molybdenum vs. Canada Silver Cobalt | China Molybdenum vs. Blackstone Minerals |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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