Correlation Between Rio Tinto and Helium One

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

Diversification Opportunities for Rio Tinto and Helium One

-0.37

Correlation Coefficient

Rio Tinto  Helium One

Very good diversification

The 3 months correlation between Rio and Helium is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto ADR and Helium One Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Helium One Global 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 Helium One. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Helium One Global has no effect on the direction of Rio Tinto i.e., Rio Tinto and Helium One go up and down completely randomly.

Pair Corralation between Rio Tinto and Helium One

Considering the 90-day investment horizon Rio Tinto ADR is expected to under-perform the Helium One. But the stock apears to be less risky and, when comparing its historical volatility, Rio Tinto ADR is 13.35 times less risky than Helium One. The stock trades about -0.17 of its potential returns per unit of risk. The Helium One Global is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1.60  in Helium One Global on August 30, 2024 and sell it today you would earn a total of  0.40  from holding Helium One Global or generate 25.0% return on investment over 90 days.

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

Rio Tinto ADR  vs.  Helium One Global

Rio Tinto ADR

Risk-Adjusted Performance

0 of 100

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.

Helium One Global

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Helium One Global are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Helium One reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rio Tinto and Helium One

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

The idea behind Rio Tinto ADR and Helium One Global 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.