Correlation Between South32 and Rio Tinto
Can any of the company-specific risk be diversified away by investing in both South32 and Rio Tinto 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 South32 and Rio Tinto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between South32 Limited and Rio Tinto Group, you can compare the effects of market volatilities on South32 and Rio Tinto 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 South32 with a short position of Rio Tinto. Check out your portfolio center. Please also check ongoing floating volatility patterns of South32 and Rio Tinto.
Diversification Opportunities for South32 and Rio Tinto
Very weak diversification
The 3 months correlation between South32 and Rio is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding South32 Limited and Rio Tinto Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto Group and South32 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 South32 Limited are associated (or correlated) with Rio Tinto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rio Tinto Group has no effect on the direction of South32 i.e., South32 and Rio Tinto go up and down completely randomly.
Pair Corralation between South32 and Rio Tinto
Assuming the 90 days horizon South32 is expected to generate 2.01 times less return on investment than Rio Tinto. But when comparing it to its historical volatility, South32 Limited is 1.21 times less risky than Rio Tinto. It trades about 0.02 of its potential returns per unit of risk. Rio Tinto Group is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 6,696 in Rio Tinto Group on August 26, 2024 and sell it today you would earn a total of 674.00 from holding Rio Tinto Group or generate 10.07% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 89.64% |
| Values | Daily Returns |
South32 Limited vs. Rio Tinto Group
Performance |
| Timeline |
| South32 Limited |
| Rio Tinto Group |
South32 and Rio Tinto Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with South32 and Rio Tinto
The main advantage of trading using opposite South32 and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if South32 position performs unexpectedly, Rio Tinto 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 Rio Tinto will offset losses from the drop in Rio Tinto's long position.| South32 vs. IGO Limited | South32 vs. Anglo American PLC | South32 vs. TNG Limited | South32 vs. Amarc Resources |
| 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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