Correlation Between Select Sector and Rio Tinto
Can any of the company-specific risk be diversified away by investing in both Select Sector 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 Select Sector and Rio Tinto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Select Sector and Rio Tinto Group, you can compare the effects of market volatilities on Select Sector 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 Select Sector with a short position of Rio Tinto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Select Sector and Rio Tinto.
Diversification Opportunities for Select Sector and Rio Tinto
0.3 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Select and Rio is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding The Select Sector 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 Select Sector 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 The Select Sector 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 Select Sector i.e., Select Sector and Rio Tinto go up and down completely randomly.
Pair Corralation between Select Sector and Rio Tinto
Assuming the 90 days trading horizon The Select Sector is expected to generate 1.14 times more return on investment than Rio Tinto. However, Select Sector is 1.14 times more volatile than Rio Tinto Group. It trades about 0.12 of its potential returns per unit of risk. Rio Tinto Group is currently generating about 0.07 per unit of risk. If you would invest 105,695 in The Select Sector on September 1, 2024 and sell it today you would earn a total of 64,905 from holding The Select Sector or generate 61.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Select Sector vs. Rio Tinto Group
Performance |
| Timeline |
| Select Sector |
| Rio Tinto Group |
Select Sector and Rio Tinto Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Select Sector and Rio Tinto
The main advantage of trading using opposite Select Sector and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Select Sector 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.| Select Sector vs. The Select Sector | Select Sector vs. The Select Sector | Select Sector vs. The Select Sector | Select Sector vs. The Select Sector |
| Rio Tinto vs. KB Home | Rio Tinto vs. First Republic Bank | Rio Tinto vs. Lloyds Banking Group | Rio Tinto vs. DXC Technology |
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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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