Correlation Between B3 SA and Vale SA

Can any of the company-specific risk be diversified away by investing in both B3 SA 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 B3 SA and Vale SA into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between B3 SA and Vale SA, you can compare the effects of market volatilities on B3 SA 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 B3 SA with a short position of Vale SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of B3 SA and Vale SA.

Diversification Opportunities for B3 SA and Vale SA

0.75

Correlation Coefficient

B3 SA  Vale SA

Poor diversification

The 3 months correlation between B3SA3 and Vale is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding B3 SA and Vale SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA and B3 SA 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 B3 SA 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 has no effect on the direction of B3 SA i.e., B3 SA and Vale SA go up and down completely randomly.

Pair Corralation between B3 SA and Vale SA

Assuming the 90 days trading horizon B3 SA is expected to generate 1.99 times more return on investment than Vale SA. However, B3 SA is 1.99 times more volatile than Vale SA. It trades about 0.13 of its potential returns per unit of risk. Vale SA is currently generating about 0.12 per unit of risk. If you would invest  1,026  in B3 SA on December 30, 2024 and sell it today you would earn a total of  214.00  from holding B3 SA or generate 20.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	93.55%
Values	Daily Returns

B3 SA   vs.  Vale SA

B3 SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in B3 SA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, B3 SA unveiled solid returns over the last few months and may actually be approaching a breakup point.

Vale SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vale SA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Vale SA may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with B3 SA and Vale SA

The main advantage of trading using opposite B3 SA and Vale SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if B3 SA 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 B3 SA and Vale SA 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.