Correlation Between Vale SA and Berkeley Energia

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

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

Diversification Opportunities for Vale SA and Berkeley Energia

0.43

Correlation Coefficient

Vale SA  Berkeley Energia

Very weak diversification

The 3 months correlation between Vale and Berkeley is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA and Berkeley Energia Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Berkeley Energia 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 Berkeley Energia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Berkeley Energia has no effect on the direction of Vale SA i.e., Vale SA and Berkeley Energia go up and down completely randomly.

Pair Corralation between Vale SA and Berkeley Energia

Assuming the 90 days trading horizon Vale SA is expected to generate 0.34 times more return on investment than Berkeley Energia. However, Vale SA is 2.93 times less risky than Berkeley Energia. It trades about -0.05 of its potential returns per unit of risk. Berkeley Energia Limited is currently generating about -0.03 per unit of risk. If you would invest  945.00  in Vale SA on October 23, 2024 and sell it today you would lose (50.00) from holding Vale SA or give up 5.29% of portfolio value over 90 days.

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

Vale SA  vs.  Berkeley Energia Limited

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.

Berkeley Energia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Berkeley Energia Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Vale SA and Berkeley Energia

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

The idea behind Vale SA and Berkeley Energia 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.