What’s Behind Rio Tinto Stock’s Sharp Price Drop?

by Trefis Team
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Rio Tinto stock (NYSE: RIO) fell 6.5% in just the last one week and is currently trading below $80 per share. The recent fall in the stock was not related to any commodity price movement or anything operational. Instead, the decline over the last few days was primarily because the company’s shares are trading ex-dividend (it is trading without the rights to an upcoming dividend payment). Rio Tinto is paying its shareholders dividends totaling $7.60/share, comprising an interim dividend of $5.09/share and a special dividend of $2.51. Thus, shares fell to reflect the fact that new buyers will not be receiving its upcoming dividend while many of the existing investors may be cashing in now that they have locked in this bumper dividend. But will RIO’s 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 7.5% in the next three-month (63 trading days) period after experiencing a 6.5% drop over the previous one-week (five trading days) period. Also, there is a 68% probability that the stock will give a positive return in the next three months. 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 Engine 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 about 2.6 percent. Also, there is a 57% chance that the stock will give positive return in the next one month following a 5% drop over the previous week.

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 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 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.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market since 2016.

 

See all Trefis Price Estimates and Download Trefis Data here

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