Correlation Between Vale SA and Critical Metals

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

Diversification Opportunities for Vale SA and Critical Metals

-0.25

Correlation Coefficient

Vale SA  Critical Metals

Very good diversification

The 3 months correlation between Vale and Critical is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA ADR and Critical Metals Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Critical Metals Corp 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 Critical Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Critical Metals Corp has no effect on the direction of Vale SA i.e., Vale SA and Critical Metals go up and down completely randomly.

Pair Corralation between Vale SA and Critical Metals

Given the investment horizon of 90 days Vale SA ADR is expected to under-perform the Critical Metals. But the stock apears to be less risky and, when comparing its historical volatility, Vale SA ADR is 2.97 times less risky than Critical Metals. The stock trades about -0.18 of its potential returns per unit of risk. The Critical Metals Corp is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  626.00  in Critical Metals Corp on October 25, 2024 and sell it today you would earn a total of  130.00  from holding Critical Metals Corp or generate 20.77% return on investment over 90 days.

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

Vale SA ADR  vs.  Critical Metals Corp

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.

Critical Metals Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Critical Metals Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady primary indicators, Critical Metals disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vale SA and Critical Metals

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

The idea behind Vale SA ADR and Critical Metals Corp 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.