Correlation Between Rio Tinto and Pilbara Minerals
Can any of the company-specific risk be diversified away by investing in both Rio Tinto and Pilbara Minerals 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 Pilbara Minerals 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 Pilbara Minerals Limited, you can compare the effects of market volatilities on Rio Tinto and Pilbara Minerals 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 Pilbara Minerals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and Pilbara Minerals.
Diversification Opportunities for Rio Tinto and Pilbara Minerals
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Rio and Pilbara is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto Group and Pilbara Minerals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pilbara Minerals 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 Pilbara Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pilbara Minerals has no effect on the direction of Rio Tinto i.e., Rio Tinto and Pilbara Minerals go up and down completely randomly.
Pair Corralation between Rio Tinto and Pilbara Minerals
Assuming the 90 days horizon Rio Tinto Group is expected to generate 0.47 times more return on investment than Pilbara Minerals. However, Rio Tinto Group is 2.13 times less risky than Pilbara Minerals. It trades about 0.05 of its potential returns per unit of risk. Pilbara Minerals Limited is currently generating about -0.11 per unit of risk. If you would invest 6,339 in Rio Tinto Group on August 28, 2024 and sell it today you would earn a total of 129.00 from holding Rio Tinto Group or generate 2.04% 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. Pilbara Minerals Limited
Performance |
| Timeline |
| Rio Tinto Group |
| Pilbara Minerals |
Rio Tinto and Pilbara Minerals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rio Tinto and Pilbara Minerals
The main advantage of trading using opposite Rio Tinto and Pilbara Minerals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rio Tinto position performs unexpectedly, Pilbara Minerals 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 Pilbara Minerals will offset losses from the drop in Pilbara Minerals' 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 |
| Pilbara Minerals vs. South32 Limited | Pilbara Minerals vs. Grupo Mxico SAB | Pilbara Minerals vs. Critical Elements | Pilbara Minerals vs. Jourdan Resources |
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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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