Correlation Between Vale SA and Materion

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

Diversification Opportunities for Vale SA and Materion

-0.34

Correlation Coefficient

Vale SA  Materion

Very good diversification

The 3 months correlation between Vale and Materion is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA ADR and Materion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Materion 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 Materion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Materion has no effect on the direction of Vale SA i.e., Vale SA and Materion go up and down completely randomly.

Pair Corralation between Vale SA and Materion

Given the investment horizon of 90 days Vale SA ADR is expected to under-perform the Materion. But the stock apears to be less risky and, when comparing its historical volatility, Vale SA ADR is 1.41 times less risky than Materion. The stock trades about -0.19 of its potential returns per unit of risk. The Materion is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  10,152  in Materion on September 1, 2024 and sell it today you would earn a total of  1,410  from holding Materion or generate 13.89% 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.  Materion

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.

Materion

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Materion are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Materion may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Vale SA and Materion

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

The idea behind Vale SA ADR and Materion 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.