Correlation Between FEMALE HEALTH and Vale SA

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

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

Diversification Opportunities for FEMALE HEALTH and Vale SA

0.54

Correlation Coefficient

FEMALE HEALTH  Vale SA

Very weak diversification

The 3 months correlation between FEMALE and Vale is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding FEMALE HEALTH and Vale SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA and FEMALE HEALTH 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 FEMALE HEALTH 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 FEMALE HEALTH i.e., FEMALE HEALTH and Vale SA go up and down completely randomly.

Pair Corralation between FEMALE HEALTH and Vale SA

Assuming the 90 days trading horizon FEMALE HEALTH is expected to generate 2.68 times more return on investment than Vale SA. However, FEMALE HEALTH is 2.68 times more volatile than Vale SA. It trades about -0.03 of its potential returns per unit of risk. Vale SA is currently generating about -0.17 per unit of risk. If you would invest  69.00  in FEMALE HEALTH on October 7, 2024 and sell it today you would lose (6.00) from holding FEMALE HEALTH or give up 8.7% of portfolio value over 90 days.

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

FEMALE HEALTH  vs.  Vale SA

FEMALE HEALTH

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FEMALE HEALTH has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, FEMALE HEALTH is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

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 fragile performance in the last few months, the Stock's essential indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with FEMALE HEALTH and Vale SA

The main advantage of trading using opposite FEMALE HEALTH and Vale SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FEMALE HEALTH 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 FEMALE HEALTH 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.