Correlation Between Rio Tinto and Strategic Advisers

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

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

Diversification Opportunities for Rio Tinto and Strategic Advisers

0.43

Correlation Coefficient

Rio Tinto  Strategic Advisers

Very weak diversification

The 3 months correlation between Rio and Strategic is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto ADR and Strategic Advisers Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strategic Advisers and Rio Tinto 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 Rio Tinto ADR are associated (or correlated) with Strategic Advisers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Strategic Advisers has no effect on the direction of Rio Tinto i.e., Rio Tinto and Strategic Advisers go up and down completely randomly.

Pair Corralation between Rio Tinto and Strategic Advisers

Considering the 90-day investment horizon Rio Tinto ADR is expected to generate 3.22 times more return on investment than Strategic Advisers. However, Rio Tinto is 3.22 times more volatile than Strategic Advisers Municipal. It trades about 0.01 of its potential returns per unit of risk. Strategic Advisers Municipal is currently generating about -0.05 per unit of risk. If you would invest  6,006  in Rio Tinto ADR on February 10, 2025 and sell it today you would lose (8.00) from holding Rio Tinto ADR or give up 0.13% of portfolio value over 90 days.

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

Rio Tinto ADR  vs.  Strategic Advisers Municipal

Rio Tinto ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rio Tinto ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Rio Tinto is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Strategic Advisers

Risk-Adjusted Performance

Very Weak

Over the last 90 days Strategic Advisers Municipal has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Strategic Advisers is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Rio Tinto and Strategic Advisers

The main advantage of trading using opposite Rio Tinto and Strategic Advisers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rio Tinto position performs unexpectedly, Strategic Advisers 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 Strategic Advisers will offset losses from the drop in Strategic Advisers' long position.

The idea behind Rio Tinto ADR and Strategic Advisers Municipal 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.

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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.