Correlation Between Rio Tinto and Stellar Resources

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

By analyzing existing cross correlation between Rio Tinto Group and Stellar Resources Limited, you can compare the effects of market volatilities on Rio Tinto and Stellar Resources 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 Stellar Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and Stellar Resources.

Diversification Opportunities for Rio Tinto and Stellar Resources

0.66

Correlation Coefficient

Rio Tinto  Stellar Resources

Poor diversification

The 3 months correlation between Rio and Stellar is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto Group and Stellar Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stellar Resources 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 Group are associated (or correlated) with Stellar Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stellar Resources has no effect on the direction of Rio Tinto i.e., Rio Tinto and Stellar Resources go up and down completely randomly.

Pair Corralation between Rio Tinto and Stellar Resources

Assuming the 90 days horizon Rio Tinto is expected to generate 1.76 times less return on investment than Stellar Resources. But when comparing it to its historical volatility, Rio Tinto Group is 2.29 times less risky than Stellar Resources. It trades about 0.16 of its potential returns per unit of risk. Stellar Resources Limited is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1.10  in Stellar Resources Limited on September 9, 2025 and sell it today you would earn a total of  0.40  from holding Stellar Resources Limited or generate 36.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

Rio Tinto Group  vs.  Stellar Resources Limited

Rio Tinto Group

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Rio Tinto reported solid returns over the last few months and may actually be approaching a breakup point.

Stellar Resources

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Stellar Resources Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Stellar Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rio Tinto and Stellar Resources

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

The idea behind Rio Tinto Group and Stellar Resources Limited 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.