Correlation Between Tarku Resources and Rio2

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

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

Diversification Opportunities for Tarku Resources and Rio2

0.08

Correlation Coefficient

Tarku Resources  Rio2

Significant diversification

The 3 months correlation between Tarku and Rio2 is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Tarku Resources and Rio2 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio2 and Tarku Resources 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 Tarku Resources are associated (or correlated) with Rio2. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rio2 has no effect on the direction of Tarku Resources i.e., Tarku Resources and Rio2 go up and down completely randomly.

Pair Corralation between Tarku Resources and Rio2

Assuming the 90 days horizon Tarku Resources is expected to under-perform the Rio2. In addition to that, Tarku Resources is 3.92 times more volatile than Rio2. It trades about -0.03 of its total potential returns per unit of risk. Rio2 is currently generating about 0.18 per unit of volatility. If you would invest  42.00  in Rio2 on January 30, 2024 and sell it today you would earn a total of  5.00  from holding Rio2 or generate 11.9% return on investment over 90 days.

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

Tarku Resources  vs.  Rio2

Tarku Resources

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tarku Resources are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Tarku Resources showed solid returns over the last few months and may actually be approaching a breakup point.

Rio2

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rio2 are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Rio2 showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tarku Resources and Rio2

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

The idea behind Tarku Resources and Rio2 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.