Correlation Between Rio2 and Aurion Resources

Can any of the company-specific risk be diversified away by investing in both Rio2 and Aurion 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 Rio2 and Aurion Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Rio2 Limited and Aurion Resources, you can compare the effects of market volatilities on Rio2 and Aurion 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 Rio2 with a short position of Aurion Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio2 and Aurion Resources.

Diversification Opportunities for Rio2 and Aurion Resources

0.2

Correlation Coefficient

Rio2  Aurion Resources

Modest diversification

The 3 months correlation between Rio2 and Aurion is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Rio2 Limited and Aurion Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aurion Resources and Rio2 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 Rio2 Limited are associated (or correlated) with Aurion Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aurion Resources has no effect on the direction of Rio2 i.e., Rio2 and Aurion Resources go up and down completely randomly.

Pair Corralation between Rio2 and Aurion Resources

Assuming the 90 days horizon Rio2 Limited is expected to generate 1.43 times more return on investment than Aurion Resources. However, Rio2 is 1.43 times more volatile than Aurion Resources. It trades about 0.04 of its potential returns per unit of risk. Aurion Resources is currently generating about 0.02 per unit of risk. If you would invest  24.00  in Rio2 Limited on March 17, 2024 and sell it today you would earn a total of  11.00  from holding Rio2 Limited or generate 45.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Rio2 Limited  vs.  Aurion Resources

Rio2 Limited

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rio2 Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical and fundamental indicators, Rio2 reported solid returns over the last few months and may actually be approaching a breakup point.

Aurion Resources

Risk-Adjusted Performance

7 of 100

Modest

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

Pair Trading with Rio2 and Aurion Resources

The main advantage of trading using opposite Rio2 and Aurion Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rio2 position performs unexpectedly, Aurion 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 Aurion Resources will offset losses from the drop in Aurion Resources' long position.

The idea behind Rio2 Limited and Aurion Resources 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.