Correlation Between Fortescue Metals and Vale SA

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

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

Diversification Opportunities for Fortescue Metals and Vale SA

0.09

Correlation Coefficient

Fortescue Metals  Vale SA

Significant diversification

The 3 months correlation between Fortescue and Vale is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Fortescue Metals Group and Vale SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA and Fortescue Metals 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 Fortescue Metals Group 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 Fortescue Metals i.e., Fortescue Metals and Vale SA go up and down completely randomly.

Pair Corralation between Fortescue Metals and Vale SA

Assuming the 90 days horizon Fortescue Metals Group is expected to under-perform the Vale SA. In addition to that, Fortescue Metals is 1.23 times more volatile than Vale SA. It trades about -0.08 of its total potential returns per unit of risk. Vale SA is currently generating about 0.12 per unit of volatility. If you would invest  823.00  in Vale SA on December 21, 2024 and sell it today you would earn a total of  97.00  from holding Vale SA or generate 11.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Fortescue Metals Group  vs.  Vale SA

Fortescue Metals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fortescue Metals Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Vale SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vale SA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Vale SA may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Fortescue Metals and Vale SA

The main advantage of trading using opposite Fortescue Metals and Vale SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fortescue Metals 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 Fortescue Metals Group 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..