Correlation Between Vale SA and Covenant Logistics

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

Diversification Opportunities for Vale SA and Covenant Logistics

-0.31
  Correlation Coefficient

Very good diversification

The 3 months correlation between Vale and Covenant is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA ADR and Covenant Logistics Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Covenant Logistics 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 Covenant Logistics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Covenant Logistics has no effect on the direction of Vale SA i.e., Vale SA and Covenant Logistics go up and down completely randomly.

Pair Corralation between Vale SA and Covenant Logistics

Given the investment horizon of 90 days Vale SA ADR is expected to generate 0.17 times more return on investment than Covenant Logistics. However, Vale SA ADR is 5.81 times less risky than Covenant Logistics. It trades about -0.18 of its potential returns per unit of risk. Covenant Logistics Group is currently generating about -0.28 per unit of risk. If you would invest  959.00  in Vale SA ADR on October 4, 2024 and sell it today you would lose (72.00) from holding Vale SA ADR or give up 7.51% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy85.71%
ValuesDaily Returns

Vale SA ADR  vs.  Covenant Logistics Group

 Performance 
       Timeline  
Vale SA ADR 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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.
Covenant Logistics 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Covenant Logistics Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile 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.

Vale SA and Covenant Logistics Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Vale SA and Covenant Logistics

The main advantage of trading using opposite Vale SA and Covenant Logistics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vale SA position performs unexpectedly, Covenant Logistics 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 Covenant Logistics will offset losses from the drop in Covenant Logistics' long position.
The idea behind Vale SA ADR and Covenant Logistics Group 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.

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