Correlation Between Wesfarmers and Rio Tinto
Can any of the company-specific risk be diversified away by investing in both Wesfarmers 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 Wesfarmers and Rio Tinto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wesfarmers and Rio Tinto, you can compare the effects of market volatilities on Wesfarmers 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 Wesfarmers with a short position of Rio Tinto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wesfarmers and Rio Tinto.
Diversification Opportunities for Wesfarmers and Rio Tinto
0.11 | Correlation Coefficient |
Average diversification
The 3 months correlation between Wesfarmers and Rio is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Wesfarmers and Rio Tinto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto and Wesfarmers 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 Wesfarmers 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 has no effect on the direction of Wesfarmers i.e., Wesfarmers and Rio Tinto go up and down completely randomly.
Pair Corralation between Wesfarmers and Rio Tinto
Assuming the 90 days trading horizon Wesfarmers is expected to generate 0.97 times more return on investment than Rio Tinto. However, Wesfarmers is 1.03 times less risky than Rio Tinto. It trades about 0.08 of its potential returns per unit of risk. Rio Tinto is currently generating about 0.02 per unit of risk. If you would invest 6,801 in Wesfarmers on October 25, 2024 and sell it today you would earn a total of 431.00 from holding Wesfarmers or generate 6.34% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 98.39% |
| Values | Daily Returns |
Wesfarmers vs. Rio Tinto
Performance |
| Timeline |
| Wesfarmers |
| Rio Tinto |
Wesfarmers and Rio Tinto Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wesfarmers and Rio Tinto
The main advantage of trading using opposite Wesfarmers and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wesfarmers 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.| Wesfarmers vs. Sky Metals | Wesfarmers vs. Stelar Metals | Wesfarmers vs. Centuria Industrial Reit | Wesfarmers vs. Oceania Healthcare |
| Rio Tinto vs. Carawine Resources Limited | Rio Tinto vs. G8 Education | Rio Tinto vs. Aurelia Metals | Rio Tinto vs. Super Retail Group |
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 Commodity Directory module to find actively traded commodities issued by global exchanges.
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