Correlation Between PNC Financial and Vale SA

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

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

Diversification Opportunities for PNC Financial and Vale SA

-0.74

Correlation Coefficient

PNC Financial  Vale SA

Pay attention - limited upside

The 3 months correlation between PNC and Vale is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding PNC Financial Services and Vale SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA and PNC Financial 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 PNC Financial Services 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 PNC Financial i.e., PNC Financial and Vale SA go up and down completely randomly.

Pair Corralation between PNC Financial and Vale SA

Assuming the 90 days trading horizon PNC Financial Services is expected to under-perform the Vale SA. But the stock apears to be less risky and, when comparing its historical volatility, PNC Financial Services is 1.33 times less risky than Vale SA. The stock trades about -0.24 of its potential returns per unit of risk. The Vale SA is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  899.00  in Vale SA on October 10, 2024 and sell it today you would lose (8.00) from holding Vale SA or give up 0.89% of portfolio value over 90 days.

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

PNC Financial Services  vs.  Vale SA

PNC Financial Services

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PNC Financial Services are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, PNC Financial unveiled 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 latest fragile performance, the Stock's essential indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with PNC Financial and Vale SA

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