Correlation Between Vale SA and Distribuidora

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

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

Diversification Opportunities for Vale SA and Distribuidora

-0.9

Correlation Coefficient

Vale SA  Distribuidora

Pay attention - limited upside

The 3 months correlation between Vale and Distribuidora is -0.9. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA and Distribuidora de Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Distribuidora de Gas and Vale SA 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 Vale SA are associated (or correlated) with Distribuidora. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Distribuidora de Gas has no effect on the direction of Vale SA i.e., Vale SA and Distribuidora go up and down completely randomly.

Pair Corralation between Vale SA and Distribuidora

Assuming the 90 days trading horizon Vale SA is expected to under-perform the Distribuidora. But the stock apears to be less risky and, when comparing its historical volatility, Vale SA is 1.52 times less risky than Distribuidora. The stock trades about -0.21 of its potential returns per unit of risk. The Distribuidora de Gas is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  149,000  in Distribuidora de Gas on October 11, 2024 and sell it today you would earn a total of  32,500  from holding Distribuidora de Gas or generate 21.81% return on investment over 90 days.

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

Vale SA  vs.  Distribuidora de Gas

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.

Distribuidora de Gas

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Distribuidora de Gas are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Distribuidora sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vale SA and Distribuidora

The main advantage of trading using opposite Vale SA and Distribuidora positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vale SA position performs unexpectedly, Distribuidora 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 Distribuidora will offset losses from the drop in Distribuidora's long position.

The idea behind Vale SA and Distribuidora de Gas 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.