Correlation Between Vale SA and Peak Resources

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

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

Diversification Opportunities for Vale SA and Peak Resources

-0.15

Correlation Coefficient

Vale SA  Peak Resources

Good diversification

The 3 months correlation between Vale and Peak is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA and Peak Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Peak Resources 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 Peak Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Peak Resources has no effect on the direction of Vale SA i.e., Vale SA and Peak Resources go up and down completely randomly.

Pair Corralation between Vale SA and Peak Resources

Assuming the 90 days trading horizon Vale SA is expected to generate 0.21 times more return on investment than Peak Resources. However, Vale SA is 4.73 times less risky than Peak Resources. It trades about 0.13 of its potential returns per unit of risk. Peak Resources Limited is currently generating about 0.01 per unit of risk. If you would invest  819.00  in Vale SA on December 25, 2024 and sell it today you would earn a total of  103.00  from holding Vale SA or generate 12.58% return on investment over 90 days.

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

Vale SA  vs.  Peak Resources Limited

Vale SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vale SA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Vale SA reported solid returns over the last few months and may actually be approaching a breakup point.

Peak Resources

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Vale SA and Peak Resources

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

The idea behind Vale SA and Peak Resources Limited 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.