Correlation Between Rio Tinto and Durango Resources

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Can any of the company-specific risk be diversified away by investing in both Rio Tinto and Durango 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 Rio Tinto and Durango Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Rio Tinto Plc and Durango Resources, you can compare the effects of market volatilities on Rio Tinto and Durango 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 Rio Tinto with a short position of Durango Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Tinto and Durango Resources.

Diversification Opportunities for Rio Tinto and Durango Resources

0.1
  Correlation Coefficient

Average diversification

The 3 months correlation between Rio Tinto and Durango is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto Plc and Durango Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Durango Resources 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 Plc are associated (or correlated) with Durango Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Durango Resources has no effect on the direction of Rio Tinto i.e., Rio Tinto and Durango Resources go up and down completely randomly.

Pair Corralation between Rio Tinto and Durango Resources

Considering the 90-day investment horizon Rio Tinto is expected to generate 5.1 times less return on investment than Durango Resources. But when comparing it to its historical volatility, Rio Tinto Plc is 3.92 times less risky than Durango Resources. It trades about 0.02 of its potential returns per unit of risk. Durango Resources is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  7.00  in Durango Resources on August 31, 2022 and sell it today you would lose (2.91)  from holding Durango Resources or give up 41.57% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy99.8%
ValuesDaily Returns

Rio Tinto Plc  vs.  Durango Resources

 Performance (%) 
       Timeline  
Rio Tinto Plc 
Rio Tinto Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto Plc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite weak forward indicators, Rio Tinto disclosed solid returns over the last few months and may actually be approaching a breakup point.

Rio Tinto Price Channel

Durango Resources 
Durango Performance
0 of 100
Over the last 90 days Durango Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Durango Resources is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Durango Price Channel

Rio Tinto and Durango Resources Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Rio Tinto and Durango Resources

The main advantage of trading using opposite Rio Tinto and Durango Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rio Tinto position performs unexpectedly, Durango 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 Durango Resources will offset losses from the drop in Durango Resources' long position.
Rio Tinto vs. Netflix
The idea behind Rio Tinto Plc and Durango 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.
Durango Resources vs. Netflix
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.

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