Correlation Between Vale SA and US GoldMining

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

Diversification Opportunities for Vale SA and US GoldMining

-0.39

Correlation Coefficient

Vale SA  US GoldMining

Very good diversification

The 3 months correlation between Vale and USGOW is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA ADR and US GoldMining Warrant in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US GoldMining Warrant 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 US GoldMining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US GoldMining Warrant has no effect on the direction of Vale SA i.e., Vale SA and US GoldMining go up and down completely randomly.

Pair Corralation between Vale SA and US GoldMining

Given the investment horizon of 90 days Vale SA ADR is expected to under-perform the US GoldMining. But the stock apears to be less risky and, when comparing its historical volatility, Vale SA ADR is 8.47 times less risky than US GoldMining. The stock trades about 0.0 of its potential returns per unit of risk. The US GoldMining Warrant is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  70.00  in US GoldMining Warrant on September 3, 2024 and sell it today you would earn a total of  169.00  from holding US GoldMining Warrant or generate 241.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	92.19%
Values	Daily Returns

Vale SA ADR  vs.  US GoldMining Warrant

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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

US GoldMining Warrant

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in US GoldMining Warrant are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, US GoldMining showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vale SA and US GoldMining

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

The idea behind Vale SA ADR and US GoldMining Warrant 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.