Correlation Between Transportadora and Vale SA

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

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

Diversification Opportunities for Transportadora and Vale SA

-0.89

Correlation Coefficient

Transportadora  Vale SA

Pay attention - limited upside

The 3 months correlation between Transportadora and Vale is -0.89. Overlapping area represents the amount of risk that can be diversified away by holding Transportadora de Gas and Vale SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA and Transportadora 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 Transportadora de Gas 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 Transportadora i.e., Transportadora and Vale SA go up and down completely randomly.

Pair Corralation between Transportadora and Vale SA

Assuming the 90 days trading horizon Transportadora de Gas is expected to generate 1.28 times more return on investment than Vale SA. However, Transportadora is 1.28 times more volatile than Vale SA. It trades about 0.32 of its potential returns per unit of risk. Vale SA is currently generating about -0.2 per unit of risk. If you would invest  497,500  in Transportadora de Gas on October 11, 2024 and sell it today you would earn a total of  299,500  from holding Transportadora de Gas or generate 60.2% return on investment over 90 days.

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

Transportadora de Gas  vs.  Vale SA

Transportadora de Gas

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Transportadora de Gas are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Transportadora sustained 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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Transportadora and Vale SA

The main advantage of trading using opposite Transportadora and Vale SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transportadora 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 Transportadora de Gas 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.