Correlation Between Woolworths and Rio Tinto
Can any of the company-specific risk be diversified away by investing in both Woolworths 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 Woolworths and Rio Tinto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Woolworths and Rio Tinto, you can compare the effects of market volatilities on Woolworths 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 Woolworths with a short position of Rio Tinto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Woolworths and Rio Tinto.
Diversification Opportunities for Woolworths and Rio Tinto
0.16 | Correlation Coefficient |
Average diversification
The 3 months correlation between Woolworths and Rio is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Woolworths and Rio Tinto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto and Woolworths 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 Woolworths 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 Woolworths i.e., Woolworths and Rio Tinto go up and down completely randomly.
Pair Corralation between Woolworths and Rio Tinto
Assuming the 90 days trading horizon Woolworths is expected to under-perform the Rio Tinto. But the stock apears to be less risky and, when comparing its historical volatility, Woolworths is 1.36 times less risky than Rio Tinto. The stock trades about -0.05 of its potential returns per unit of risk. The Rio Tinto is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest 11,747 in Rio Tinto on November 4, 2024 and sell it today you would lose (7.00) from holding Rio Tinto or give up 0.06% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Woolworths vs. Rio Tinto
Performance |
| Timeline |
| Woolworths |
| Rio Tinto |
Woolworths and Rio Tinto Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Woolworths and Rio Tinto
The main advantage of trading using opposite Woolworths and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Woolworths 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.| Woolworths vs. Insignia Financial | Woolworths vs. Macquarie Bank Limited | Woolworths vs. COG Financial Services | Woolworths vs. Qbe Insurance Group |
| Rio Tinto vs. Norfolk Metals | Rio Tinto vs. National Australia Bank | Rio Tinto vs. DY6 Metals | Rio Tinto vs. Medibank Private |
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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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