Correlation Between Rio Tinto and Boliden AB

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

Diversification Opportunities for Rio Tinto and Boliden AB

0.43

Correlation Coefficient

Rio Tinto  Boliden AB

Very weak diversification

The 3 months correlation between Rio and Boliden is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto ADR and Boliden AB ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boliden AB ADR 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 Boliden AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Boliden AB ADR has no effect on the direction of Rio Tinto i.e., Rio Tinto and Boliden AB go up and down completely randomly.

Pair Corralation between Rio Tinto and Boliden AB

Considering the 90-day investment horizon Rio Tinto is expected to generate 1.7 times less return on investment than Boliden AB. But when comparing it to its historical volatility, Rio Tinto ADR is 1.05 times less risky than Boliden AB. It trades about 0.21 of its potential returns per unit of risk. Boliden AB ADR is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  5,609  in Boliden AB ADR on January 25, 2024 and sell it today you would earn a total of  737.64  from holding Boliden AB ADR or generate 13.15% return on investment over 90 days.

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

Rio Tinto ADR  vs.  Boliden AB ADR

Rio Tinto ADR

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto ADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Boliden AB ADR

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Boliden AB ADR are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Boliden AB showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rio Tinto and Boliden AB

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

The idea behind Rio Tinto ADR and Boliden AB ADR 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.