Correlation Between DAX Index and Rio Tinto

Can any of the company-specific risk be diversified away by investing in both DAX Index 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 DAX Index and Rio Tinto into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between DAX Index and Rio Tinto Group, you can compare the effects of market volatilities on DAX Index 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 DAX Index with a short position of Rio Tinto. Check out your portfolio center. Please also check ongoing floating volatility patterns of DAX Index and Rio Tinto.

Diversification Opportunities for DAX Index and Rio Tinto

-0.12

Correlation Coefficient

DAX Index  Rio Tinto

Good diversification

The 3 months correlation between DAX and Rio is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index 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 DAX Index 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 DAX Index 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 DAX Index i.e., DAX Index and Rio Tinto go up and down completely randomly.

Pair Corralation between DAX Index and Rio Tinto

Assuming the 90 days trading horizon DAX Index is expected to generate 0.66 times more return on investment than Rio Tinto. However, DAX Index is 1.52 times less risky than Rio Tinto. It trades about 0.23 of its potential returns per unit of risk. Rio Tinto Group is currently generating about -0.01 per unit of risk. If you would invest  2,129,353  in DAX Index on April 22, 2025 and sell it today you would earn a total of  299,598  from holding DAX Index or generate 14.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

DAX Index  vs.  Rio Tinto Group

Pair Trading with DAX Index and Rio Tinto

The main advantage of trading using opposite DAX Index and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DAX Index 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.

The idea behind DAX Index and Rio Tinto Group pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.