Correlation Between Vale SA and Forsys Metals

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

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

Diversification Opportunities for Vale SA and Forsys Metals

0.62

Correlation Coefficient

Vale SA  Forsys Metals

Poor diversification

The 3 months correlation between Vale and Forsys is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA and Forsys Metals Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Forsys Metals Corp 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 Forsys Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Forsys Metals Corp has no effect on the direction of Vale SA i.e., Vale SA and Forsys Metals go up and down completely randomly.

Pair Corralation between Vale SA and Forsys Metals

Assuming the 90 days trading horizon Vale SA is expected to under-perform the Forsys Metals. But the stock apears to be less risky and, when comparing its historical volatility, Vale SA is 2.25 times less risky than Forsys Metals. The stock trades about -0.14 of its potential returns per unit of risk. The Forsys Metals Corp is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  39.00  in Forsys Metals Corp on October 6, 2024 and sell it today you would earn a total of  7.00  from holding Forsys Metals Corp or generate 17.95% return on investment over 90 days.

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

Vale SA  vs.  Forsys Metals Corp

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 uncertain performance in the last few months, the Stock's essential indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Forsys Metals Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Vale SA and Forsys Metals

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

The idea behind Vale SA and Forsys Metals Corp 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 Directory module to find actively traded commodities issued by global exchanges.