Correlation Between Vale SA and First Graphene

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

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

Diversification Opportunities for Vale SA and First Graphene

0.26

Correlation Coefficient

Vale SA  First Graphene

Modest diversification

The 3 months correlation between Vale and First is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA and First Graphene in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Graphene 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 First Graphene. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Graphene has no effect on the direction of Vale SA i.e., Vale SA and First Graphene go up and down completely randomly.

Pair Corralation between Vale SA and First Graphene

Assuming the 90 days trading horizon Vale SA is expected to generate 6.09 times less return on investment than First Graphene. But when comparing it to its historical volatility, Vale SA is 6.86 times less risky than First Graphene. It trades about 0.14 of its potential returns per unit of risk. First Graphene is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1.50  in First Graphene on December 20, 2024 and sell it today you would earn a total of  0.88  from holding First Graphene or generate 58.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Vale SA  vs.  First Graphene

Vale SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vale SA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain essential indicators, Vale SA reported solid returns over the last few months and may actually be approaching a breakup point.

First Graphene

Risk-Adjusted Performance

OK

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

Pair Trading with Vale SA and First Graphene

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

The idea behind Vale SA and First Graphene 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.