Correlation Between Rio Tinto and Macarthur Minerals

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

Diversification Opportunities for Rio Tinto and Macarthur Minerals

-0.79

Correlation Coefficient

Rio Tinto  Macarthur Minerals

Pay attention - limited upside

The 3 months correlation between Rio and Macarthur is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto Group and Macarthur Minerals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Macarthur Minerals 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 Macarthur Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Macarthur Minerals has no effect on the direction of Rio Tinto i.e., Rio Tinto and Macarthur Minerals go up and down completely randomly.

Pair Corralation between Rio Tinto and Macarthur Minerals

Assuming the 90 days horizon Rio Tinto Group is expected to generate 0.36 times more return on investment than Macarthur Minerals. However, Rio Tinto Group is 2.78 times less risky than Macarthur Minerals. It trades about 0.14 of its potential returns per unit of risk. Macarthur Minerals Limited is currently generating about -0.11 per unit of risk. If you would invest  6,700  in Rio Tinto Group on February 26, 2024 and sell it today you would earn a total of  495.00  from holding Rio Tinto Group or generate 7.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Rio Tinto Group  vs.  Macarthur Minerals Limited

Rio Tinto Group

Risk-Adjusted Performance

9 of 100

OK

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

Macarthur Minerals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Macarthur Minerals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Rio Tinto and Macarthur Minerals

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

The idea behind Rio Tinto Group and Macarthur Minerals 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.