Correlation Between Core Lithium and Vale SA

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

By analyzing existing cross correlation between Core Lithium and Vale SA ADR, you can compare the effects of market volatilities on Core Lithium and Vale SA 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 Core Lithium with a short position of Vale SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Core Lithium and Vale SA.

Diversification Opportunities for Core Lithium and Vale SA

0.85

Correlation Coefficient

Core Lithium  Vale SA

Very poor diversification

The 3 months correlation between Core and Vale is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Core Lithium and Vale SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA ADR and Core Lithium 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 Core Lithium are associated (or correlated) with Vale SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vale SA ADR has no effect on the direction of Core Lithium i.e., Core Lithium and Vale SA go up and down completely randomly.

Pair Corralation between Core Lithium and Vale SA

Assuming the 90 days horizon Core Lithium is expected to generate 8.17 times more return on investment than Vale SA. However, Core Lithium is 8.17 times more volatile than Vale SA ADR. It trades about 0.02 of its potential returns per unit of risk. Vale SA ADR is currently generating about 0.03 per unit of risk. If you would invest  5.38  in Core Lithium on October 21, 2024 and sell it today you would lose (0.16) from holding Core Lithium or give up 2.97% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.0%
Values	Daily Returns

Core Lithium  vs.  Vale SA ADR

Core Lithium

Risk-Adjusted Performance

0 of 100

Very Weak

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

Vale SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vale SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's essential indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Core Lithium and Vale SA

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

The idea behind Core Lithium and Vale SA ADR 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 Global Correlations module to find global opportunities by holding instruments from different markets.