Correlation Between Vale SA and Grupo Mxico

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

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

Diversification Opportunities for Vale SA and Grupo Mxico

-0.59

Correlation Coefficient

Vale SA  Grupo Mxico

Excellent diversification

The 3 months correlation between Vale and Grupo is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA and Grupo Mxico SAB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grupo Mxico SAB and Vale 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 Vale SA are associated (or correlated) with Grupo Mxico. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grupo Mxico SAB has no effect on the direction of Vale SA i.e., Vale SA and Grupo Mxico go up and down completely randomly.

Pair Corralation between Vale SA and Grupo Mxico

Assuming the 90 days trading horizon Vale SA is expected to under-perform the Grupo Mxico. But the stock apears to be less risky and, when comparing its historical volatility, Vale SA is 4.06 times less risky than Grupo Mxico. The stock trades about -0.29 of its potential returns per unit of risk. The Grupo Mxico SAB is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  349.00  in Grupo Mxico SAB on September 23, 2024 and sell it today you would earn a total of  120.00  from holding Grupo Mxico SAB or generate 34.38% return on investment over 90 days.

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

Vale SA  vs.  Grupo Mxico SAB

Vale SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vale SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, Vale SA is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Grupo Mxico SAB

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Grupo Mxico SAB are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Grupo Mxico reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vale SA and Grupo Mxico

The main advantage of trading using opposite Vale SA and Grupo Mxico positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vale SA position performs unexpectedly, Grupo Mxico 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 Grupo Mxico will offset losses from the drop in Grupo Mxico's long position.

The idea behind Vale SA and Grupo Mxico SAB 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 Global Correlations module to find global opportunities by holding instruments from different markets.