Correlation Between Southern Copper and Vale SA

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

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

Diversification Opportunities for Southern Copper and Vale SA

0.65

Correlation Coefficient

Southern Copper  Vale SA

Poor diversification

The 3 months correlation between Southern and Vale is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Southern Copper and Vale SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA and Southern Copper 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 Southern Copper 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 Southern Copper i.e., Southern Copper and Vale SA go up and down completely randomly.

Pair Corralation between Southern Copper and Vale SA

Assuming the 90 days trading horizon Southern Copper is expected to generate 0.93 times more return on investment than Vale SA. However, Southern Copper is 1.08 times less risky than Vale SA. It trades about 0.07 of its potential returns per unit of risk. Vale SA is currently generating about -0.01 per unit of risk. If you would invest  199,641  in Southern Copper on September 15, 2024 and sell it today you would earn a total of  15,359  from holding Southern Copper or generate 7.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.72%
Values	Daily Returns

Southern Copper  vs.  Vale SA

Southern Copper

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Copper are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Southern Copper may actually be approaching a critical reversion point that can send shares even higher in January 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 very healthy primary indicators, Vale SA is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Southern Copper and Vale SA

The main advantage of trading using opposite Southern Copper and Vale SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southern Copper 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 Southern Copper 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.