Correlation Between Vale SA and Peninsula Energy

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

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

Diversification Opportunities for Vale SA and Peninsula Energy

0.68

Correlation Coefficient

Vale SA  Peninsula Energy

Poor diversification

The 3 months correlation between Vale and Peninsula is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA and Peninsula Energy Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Peninsula Energy 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 Peninsula Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Peninsula Energy has no effect on the direction of Vale SA i.e., Vale SA and Peninsula Energy go up and down completely randomly.

Pair Corralation between Vale SA and Peninsula Energy

Assuming the 90 days trading horizon Vale SA is expected to generate 0.26 times more return on investment than Peninsula Energy. However, Vale SA is 3.87 times less risky than Peninsula Energy. It trades about 0.07 of its potential returns per unit of risk. Peninsula Energy Limited is currently generating about -0.23 per unit of risk. If you would invest  912.00  in Vale SA on September 15, 2024 and sell it today you would earn a total of  18.00  from holding Vale SA or generate 1.97% 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.  Peninsula Energy Limited

Vale SA

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vale SA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Peninsula Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Peninsula Energy Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Vale SA and Peninsula Energy

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

The idea behind Vale SA and Peninsula Energy 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.