Correlation Between Rio Tinto and Lithium Americas

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

Diversification Opportunities for Rio Tinto and Lithium Americas

-0.21

Correlation Coefficient

Rio Tinto  Lithium Americas

Very good diversification

The 3 months correlation between Rio and Lithium is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto ADR and Lithium Americas Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithium Americas Corp 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 Lithium Americas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lithium Americas Corp has no effect on the direction of Rio Tinto i.e., Rio Tinto and Lithium Americas go up and down completely randomly.

Pair Corralation between Rio Tinto and Lithium Americas

Considering the 90-day investment horizon Rio Tinto ADR is expected to generate 0.21 times more return on investment than Lithium Americas. However, Rio Tinto ADR is 4.68 times less risky than Lithium Americas. It trades about 0.29 of its potential returns per unit of risk. Lithium Americas Corp is currently generating about -0.24 per unit of risk. If you would invest  6,300  in Rio Tinto ADR on February 5, 2024 and sell it today you would earn a total of  594.00  from holding Rio Tinto ADR or generate 9.43% 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.  Lithium Americas Corp

Rio Tinto ADR

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto ADR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady forward indicators, Rio Tinto may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Lithium Americas Corp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lithium Americas Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting basic indicators, Lithium Americas exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rio Tinto and Lithium Americas

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

The idea behind Rio Tinto ADR and Lithium Americas Corp 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.