Correlation Between Compania and Vale SA

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

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

Diversification Opportunities for Compania and Vale SA

-0.79

Correlation Coefficient

Compania  Vale SA

Pay attention - limited upside

The 3 months correlation between Compania and Vale is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Compania de Transporte and Vale SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA and Compania 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 Compania de Transporte 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 Compania i.e., Compania and Vale SA go up and down completely randomly.

Pair Corralation between Compania and Vale SA

Assuming the 90 days trading horizon Compania de Transporte is expected to generate 2.84 times more return on investment than Vale SA. However, Compania is 2.84 times more volatile than Vale SA. It trades about 0.25 of its potential returns per unit of risk. Vale SA is currently generating about -0.11 per unit of risk. If you would invest  230,000  in Compania de Transporte on October 11, 2024 and sell it today you would earn a total of  62,000  from holding Compania de Transporte or generate 26.96% return on investment over 90 days.

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

Compania de Transporte  vs.  Vale SA

Compania de Transporte

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Compania de Transporte are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Compania 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 Compania and Vale SA

The main advantage of trading using opposite Compania and Vale SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Compania 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 Compania de Transporte 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..