Rio Tinto Stock Up 40% In Six Months, But More Gains To Follow

Rio Tinto stock (NYSE: RIO) jumped more than 40% in the last six months (126 trading days) and currently trades at $86 per share. The sharp rally was driven by a recovery in global iron ore prices. Iron ore price per ton currently stands at $176, which reflects an increase of more than 45% in the last six months and more than double in the last one year. Additionally, the lifting of lockdowns over recent months and successful vaccine rollout has led to expectations of healthy growth in shipments in 2021 as demand gets back on track and supply constraints are reduced. The recent increase in Covid cases is one risk that the company faces, as re-imposition of lockdowns will delay the recovery process in revenues and earnings. But, expectations of more economic stimulus packages and a loose monetary policy will keep iron ore prices elevated as investment in infrastructure increases. So, after the recent rally will RIO’s stock continue its upward trajectory over the coming weeks, or is a correction in the stock more likely?

According to the Trefis Machine Learning Engine, which identifies trends in a company’s stock price data for the last ten years, returns for RIO stock average close to 12% in the next six-month (126 trading days) period after experiencing a 43% rise over the previous six-month (126 trading days) period. Notably, the stock is likely to perform similar to the S&P500 over the next six months.

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 five trading days, THEN over the next 21 trading days, Rio Tinto stock moves an average of 2.5 percent, which implies an excess return of 1.1 percent compared to the S&P500.

More importantly, there is 56% probability of a positive return over the next 21 trading days and 56% probability of a positive excess return after a -5% change over five 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 2.5% 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 -0.7% 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 five 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 generally lower than after 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 five 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.

While RIO stock may have moved a lot, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how the stock valuation for Compass Minerals vs Southwest Gas shows a disconnect with their relative operational growth. You can find many such discontinuous pairs here.

See all Trefis Price Estimates and Download Trefis Data here

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