Correlation Between Vale SA and Altiplano Metals

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

By analyzing existing cross correlation between Vale SA ADR and Altiplano Metals, you can compare the effects of market volatilities on Vale SA and Altiplano Metals 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 Altiplano Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vale SA and Altiplano Metals.

Diversification Opportunities for Vale SA and Altiplano Metals

0.8

Correlation Coefficient

Vale SA  Altiplano Metals

Very poor diversification

The 3 months correlation between Vale and Altiplano is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA ADR and Altiplano Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Altiplano Metals 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 ADR are associated (or correlated) with Altiplano Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Altiplano Metals has no effect on the direction of Vale SA i.e., Vale SA and Altiplano Metals go up and down completely randomly.

Pair Corralation between Vale SA and Altiplano Metals

Given the investment horizon of 90 days Vale SA ADR is expected to generate 0.25 times more return on investment than Altiplano Metals. However, Vale SA ADR is 4.0 times less risky than Altiplano Metals. It trades about -0.2 of its potential returns per unit of risk. Altiplano Metals is currently generating about -0.1 per unit of risk. If you would invest  1,135  in Vale SA ADR on October 4, 2024 and sell it today you would lose (247.50) from holding Vale SA ADR or give up 21.81% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Vale SA ADR  vs.  Altiplano Metals

Vale SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vale SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's essential indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Altiplano Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Altiplano Metals 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 nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Vale SA and Altiplano Metals

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

The idea behind Vale SA ADR and Altiplano Metals 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.