Correlation Between Vale SA and Teck Resources

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

Diversification Opportunities for Vale SA and Teck Resources

0.75

Correlation Coefficient

Vale SA  Teck Resources

Poor diversification

The 3 months correlation between Vale and Teck is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA ADR and Teck Resources Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Teck Resources 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 Teck Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Teck Resources has no effect on the direction of Vale SA i.e., Vale SA and Teck Resources go up and down completely randomly.

Pair Corralation between Vale SA and Teck Resources

Given the investment horizon of 90 days Vale SA ADR is expected to generate 0.92 times more return on investment than Teck Resources. However, Vale SA ADR is 1.09 times less risky than Teck Resources. It trades about -0.01 of its potential returns per unit of risk. Teck Resources Ltd is currently generating about -0.08 per unit of risk. If you would invest  993.00  in Vale SA ADR on November 19, 2024 and sell it today you would lose (17.00) from holding Vale SA ADR or give up 1.71% of portfolio value over 90 days.

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

Vale SA ADR  vs.  Teck Resources Ltd

Vale SA ADR

Risk-Adjusted Performance

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.

Teck Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Teck Resources Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Vale SA and Teck Resources

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

The idea behind Vale SA ADR and Teck Resources Ltd 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.