How Is Rio Tinto Stock Faring Amidst Drop In Iron Ore Price?

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Rio Tinto stock (NYSE: RIO) has shed almost 4% of its value in the last one week and is currently trading at $84 per share. This was in line with the overall weakness in the metals space during the week, mainly due to developments in China and the U.S.  China signaled that by cracking down on hoarding and monopolies it would focus on efforts to cool soaring prices of commodities, warning of excessive speculation as concerns grow over rising inflation. Metal prices skyrocketed looking at China’s robust recovery post pandemic, and the authorities believe that speculative activities are going on to keep prices elevated. Separately, U.S. President Joe Biden’s spending plan is apparently being cut back from $2.25 trillion to $1.7 trillion amidst opposition from Republicans. Most of the cuts will include important parts for metals consumption, like broadband, roads, and bridges. These factors have led to weakness in metals over the last few days. Iron ore price per ton has dropped 2.4% in the last one week.

But will RIO stock continue its downward trajectory over the coming weeks, or is a recovery 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 a little over 2% in the next one-month (21 trading days) period after experiencing a 3.7% decline over the previous one-week (five trading days) period. Notably, though, the stock is likely to outperform the S&P500 over the next one month, with an expected return which would be almost 1% higher compared to the S&P500.

But how would these numbers change if you are interested in holding RIO 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 stock 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 one day!

MACHINE LEARNING ENGINE – try it yourself:

IF RIO stock moved by -5% over five trading days, THEN over the next 21 trading days, RIO stock moves an average of 2.6 percent, which implies a return which is 1% higher than that of 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 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 2.6% 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, 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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