Rio Tinto Rises 36% In 3 Months; Stay Patient To Earn More

Rio Tinto stock (NYSE: RIO) jumped almost 36% in the last three months and currently trades around $80 per share. This rise was driven by the sharp increase of more than 50% in global iron ore prices in three months. Iron ore price per ton increased from $120 in October 2020 to $170 in January 2021. Compared to April 2020 when the price was around $80/ton, iron ore prices have more than doubled. With the lifting of lockdowns, supply constraints are also expected to ease leading to higher production and volume sales. Increased shipments and higher price realization will drive revenue and earnings growth in 2021, the expectation of which has led to a healthy rally in RIO’s stock over the last few months.

According to the Trefis Machine Learning Engine, which identifies trends in a company’s stock price data for the last 20 years, returns for Rio Tinto stock average close to 0.4% in the next one-month (21 trading days) period after experiencing a 36% rise over the previous three-month (63 trading days) period. This means that the stock largely stays flat in the following month. Notably, though, the stock is likely to underperform the S&P500 over the next one month (21 trading days), with an expected excess return of –1.6% compared to the S&P500.

But how would these numbers change if you are interested in holding Rio Tinto stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning to test Rio Tinto stock’s chances of a rise after a fall and vice versa. You can test the chance of recovery over different time intervals of a quarter, month, or even just 1 day!

MACHINE LEARNING ENGINE – try it yourself:

IF Rio Tinto stock moved by -5% over 5 trading days, THEN over the next 21 trading days, Rio Tinto stock moves an average of 2.7 percent, which implies an excess return of 2.1 percent compared to the S&P500.

More importantly, there is 59% probability of a positive return over the next 21 trading days and 59% probability of a positive excess return after a -5% change over 5 trading days.

Some Fun Scenarios, FAQs & Making Sense of Rio Tinto Stock Movements:

Question 1: Is the average return for Rio Tinto stock higher after a drop?

Answer:

Consider two situations,

Case 1: Rio Tinto stock drops by -5% or more in a week

Case 2: Rio Tinto stock rises by 5% or more in a week

Is the average return for Rio Tinto stock higher over the subsequent month after Case 1 or Case 2?

RIO stock fares better after Case 1, with an average return of 4% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 0.9% for Case 2.

In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.

Try the Trefis machine learning engine above to see for yourself how Rio Tinto stock is likely to behave after any specific gain or loss over a period.

Question 2: Does patience pay?

Answer:

If you buy and hold Rio Tinto stock, the expectation is over time the near term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.

Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!

For RIO stock, the returns over the next N days after a -5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:

Question 3: What about the average return after a rise if you wait for a while?

Answer:

The average return after a rise is understandably lower than a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks.

RIO’s returns over the next N days after a 5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:

It’s pretty powerful to test the trend for yourself for Rio Tinto stock by changing the inputs in the charts above.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.

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