Correlation Between Vale SA and ANGLO AMERICAN

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

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

Diversification Opportunities for Vale SA and ANGLO AMERICAN

-0.1

Correlation Coefficient

Vale SA  ANGLO AMERICAN

Good diversification

The 3 months correlation between Vale and ANGLO is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA and ANGLO AMERICAN SPADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ANGLO AMERICAN SPADR 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 ANGLO AMERICAN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ANGLO AMERICAN SPADR has no effect on the direction of Vale SA i.e., Vale SA and ANGLO AMERICAN go up and down completely randomly.

Pair Corralation between Vale SA and ANGLO AMERICAN

Assuming the 90 days trading horizon Vale SA is expected to under-perform the ANGLO AMERICAN. But the stock apears to be less risky and, when comparing its historical volatility, Vale SA is 1.29 times less risky than ANGLO AMERICAN. The stock trades about -0.13 of its potential returns per unit of risk. The ANGLO AMERICAN SPADR is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,380  in ANGLO AMERICAN SPADR on September 23, 2024 and sell it today you would earn a total of  0.00  from holding ANGLO AMERICAN SPADR or generate 0.0% 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.  ANGLO AMERICAN SPADR

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

ANGLO AMERICAN SPADR

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ANGLO AMERICAN SPADR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, ANGLO AMERICAN reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vale SA and ANGLO AMERICAN

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

The idea behind Vale SA and ANGLO AMERICAN SPADR 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .