Correlation Between Distribuidora and Vale SA

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

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

Diversification Opportunities for Distribuidora and Vale SA

-0.74

Correlation Coefficient

Distribuidora  Vale SA

Pay attention - limited upside

The 3 months correlation between Distribuidora and Vale is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Distribuidora de Gas and Vale SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA and Distribuidora 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 Distribuidora de Gas 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 has no effect on the direction of Distribuidora i.e., Distribuidora and Vale SA go up and down completely randomly.

Pair Corralation between Distribuidora and Vale SA

Assuming the 90 days trading horizon Distribuidora de Gas is expected to generate 1.87 times more return on investment than Vale SA. However, Distribuidora is 1.87 times more volatile than Vale SA. It trades about 0.17 of its potential returns per unit of risk. Vale SA is currently generating about -0.14 per unit of risk. If you would invest  141,000  in Distribuidora de Gas on October 26, 2024 and sell it today you would earn a total of  58,500  from holding Distribuidora de Gas or generate 41.49% return on investment over 90 days.

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

Distribuidora de Gas  vs.  Vale SA

Distribuidora de Gas

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Distribuidora de Gas are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Distribuidora sustained solid returns over the last few months and may actually be approaching a breakup point.

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Distribuidora and Vale SA

The main advantage of trading using opposite Distribuidora and Vale SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Distribuidora 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 Distribuidora de Gas and Vale SA 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.