Correlation Between Rio Tinto and Zijin Mining

Can any of the company-specific risk be diversified away by investing in both Rio Tinto and Zijin Mining 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 Zijin Mining 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 Zijin Mining Group, you can compare the effects of market volatilities on Rio Tinto and Zijin Mining 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 Zijin Mining. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and Zijin Mining.

Diversification Opportunities for Rio Tinto and Zijin Mining

0.9

Correlation Coefficient

Rio Tinto  Zijin Mining

Almost no diversification

The 3 months correlation between Rio and Zijin is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto Group and Zijin Mining Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zijin Mining Group 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 Zijin Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zijin Mining Group has no effect on the direction of Rio Tinto i.e., Rio Tinto and Zijin Mining go up and down completely randomly.

Pair Corralation between Rio Tinto and Zijin Mining

Assuming the 90 days trading horizon Rio Tinto is expected to generate 2.76 times less return on investment than Zijin Mining. But when comparing it to its historical volatility, Rio Tinto Group is 2.57 times less risky than Zijin Mining. It trades about 0.16 of its potential returns per unit of risk. Zijin Mining Group is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  139.00  in Zijin Mining Group on March 5, 2024 and sell it today you would earn a total of  51.00  from holding Zijin Mining Group or generate 36.69% return on investment over 90 days.

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

Rio Tinto Group  vs.  Zijin Mining Group

Rio Tinto Group

Risk-Adjusted Performance

12 of 100

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.

Zijin Mining Group

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Zijin Mining Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Zijin Mining reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rio Tinto and Zijin Mining

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

The idea behind Rio Tinto Group and Zijin Mining 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.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.