Correlation Between Rio Tinto and American Manganese

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

Diversification Opportunities for Rio Tinto and American Manganese

-0.47

Correlation Coefficient

Rio Tinto  American Manganese

Very good diversification

The 12 months correlation between Rio and American is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto Group and American Manganese in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Manganese 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 American Manganese. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Manganese has no effect on the direction of Rio Tinto i.e., Rio Tinto and American Manganese go up and down completely randomly.

Pair Corralation between Rio Tinto and American Manganese

Assuming the 90 days horizon Rio Tinto Group is expected to generate 0.59 times more return on investment than American Manganese. However, Rio Tinto Group is 1.7 times less risky than American Manganese. It trades about 0.09 of its potential returns per unit of risk. American Manganese is currently generating about 0.02 per unit of risk. If you would invest  6,653  in Rio Tinto Group on February 16, 2024 and sell it today you would earn a total of  257.00  from holding Rio Tinto Group or generate 3.86% return on investment over 90 days.

Time Period	12 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Rio Tinto Group  vs.  American Manganese

Rio Tinto Group

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Rio Tinto may actually be approaching a critical reversion point that can send shares even higher in June 2024.

American Manganese

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Manganese has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Rio Tinto and American Manganese

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

The idea behind Rio Tinto Group and American Manganese 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.