Correlation Between Aurelia Metals and Vale SA

Can any of the company-specific risk be diversified away by investing in both Aurelia Metals and Vale SA at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Aurelia Metals and Vale SA into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Aurelia Metals Limited and Vale SA ADR, you can compare the effects of market volatilities on Aurelia Metals and Vale SA and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Aurelia Metals with a short position of Vale SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aurelia Metals and Vale SA.

Diversification Opportunities for Aurelia Metals and Vale SA

0.57

Correlation Coefficient

Aurelia Metals  Vale SA

Very weak diversification

The 3 months correlation between Aurelia and Vale is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Aurelia Metals Limited and Vale SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA ADR and Aurelia Metals is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Aurelia Metals Limited are associated (or correlated) with Vale SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vale SA ADR has no effect on the direction of Aurelia Metals i.e., Aurelia Metals and Vale SA go up and down completely randomly.

Pair Corralation between Aurelia Metals and Vale SA

Assuming the 90 days horizon Aurelia Metals Limited is expected to generate 7.74 times more return on investment than Vale SA. However, Aurelia Metals is 7.74 times more volatile than Vale SA ADR. It trades about 0.21 of its potential returns per unit of risk. Vale SA ADR is currently generating about -0.17 per unit of risk. If you would invest  7.04  in Aurelia Metals Limited on October 4, 2024 and sell it today you would earn a total of  4.96  from holding Aurelia Metals Limited or generate 70.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Aurelia Metals Limited  vs.  Vale SA ADR

Aurelia Metals

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Aurelia Metals Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Aurelia Metals reported solid returns over the last few months and may actually be approaching a breakup point.

Vale SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vale SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's essential indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Aurelia Metals and Vale SA

The main advantage of trading using opposite Aurelia Metals and Vale SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aurelia Metals position performs unexpectedly, Vale SA can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Vale SA will offset losses from the drop in Vale SA's long position.

The idea behind Aurelia Metals Limited and Vale SA ADR pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.