Why Has Rio Tinto Stock Seen Weakness In The Last One Month?

by Trefis Team
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Rio Tinto stock (NYSE: RIO) has dropped more than 5% in the last one month and is now trading at little less than $84 per share. The decline was driven by overall weakness in commodity prices during this period. Metals prices had earlier skyrocketed looking at China’s robust recovery post pandemic, and the authorities believe that speculative activities are going on to keep prices elevated. This has led to China announcing that it will crackdown on hoarding and monopolies by focusing on efforts to cool soaring prices of commodities. China’s National Food and Strategic Reserves Administration announced that it will release metal in batches in the near future from its stockpile. Also, U.S. President Joe Biden has proposed to cut back his spending plan from $2.25 trillion to $1.7 trillion amidst opposition from Republicans. This has led to volatility in the global commodity markets leading to value erosion of some of the world’s biggest mining giants like Rio Tinto.

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 close to 3% in the next three-months (63 trading days) period after experiencing a 5% decline over the previous one-month (21 trading days) period. 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 2.5 percent with a 56% probability that the stock will rise over the next month.

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 2.5% 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 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 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 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.

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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