Correlation Between Grupo Industrial and Vale SA

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

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

Diversification Opportunities for Grupo Industrial and Vale SA

-0.05

Correlation Coefficient

Grupo Industrial  Vale SA

Good diversification

The 3 months correlation between Grupo and Vale is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Grupo Industrial Saltillo and Vale SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA and Grupo Industrial 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 Grupo Industrial Saltillo 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 Grupo Industrial i.e., Grupo Industrial and Vale SA go up and down completely randomly.

Pair Corralation between Grupo Industrial and Vale SA

Assuming the 90 days trading horizon Grupo Industrial Saltillo is expected to under-perform the Vale SA. In addition to that, Grupo Industrial is 1.05 times more volatile than Vale SA. It trades about -0.05 of its total potential returns per unit of risk. Vale SA is currently generating about -0.02 per unit of volatility. If you would invest  19,563  in Vale SA on October 26, 2024 and sell it today you would lose (1,513) from holding Vale SA or give up 7.73% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Grupo Industrial Saltillo  vs.  Vale SA

Grupo Industrial Saltillo

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Grupo Industrial Saltillo are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Grupo Industrial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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. In spite of weak performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Grupo Industrial and Vale SA

The main advantage of trading using opposite Grupo Industrial and Vale SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Grupo Industrial 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 Grupo Industrial Saltillo 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.