Correlation Between Vale SA and Aris Mining

Can any of the company-specific risk be diversified away by investing in both Vale SA and Aris Mining 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 Aris Mining 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 Aris Mining, you can compare the effects of market volatilities on Vale SA and Aris Mining 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 Aris Mining. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vale SA and Aris Mining.

Diversification Opportunities for Vale SA and Aris Mining

0.62

Correlation Coefficient

Vale SA  Aris Mining

Poor diversification

The 3 months correlation between Vale and Aris is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA ADR and Aris Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aris Mining 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 Aris Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aris Mining has no effect on the direction of Vale SA i.e., Vale SA and Aris Mining go up and down completely randomly.

Pair Corralation between Vale SA and Aris Mining

Given the investment horizon of 90 days Vale SA ADR is expected to under-perform the Aris Mining. But the stock apears to be less risky and, when comparing its historical volatility, Vale SA ADR is 1.9 times less risky than Aris Mining. The stock trades about -0.1 of its potential returns per unit of risk. The Aris Mining is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  410.00  in Aris Mining on September 12, 2024 and sell it today you would earn a total of  4.00  from holding Aris Mining or generate 0.98% return on investment over 90 days.

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

Vale SA ADR  vs.  Aris Mining

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 rather sound essential indicators, Vale SA is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Aris Mining

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aris Mining has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Vale SA and Aris Mining

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

The idea behind Vale SA ADR and Aris Mining 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.