Correlation Between Vale SA and Western Copper

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

Diversification Opportunities for Vale SA and Western Copper

0.52

Correlation Coefficient

Vale SA  Western Copper

Very weak diversification

The 3 months correlation between Vale and Western is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA ADR and Western Copper and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Copper 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 Western Copper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Copper has no effect on the direction of Vale SA i.e., Vale SA and Western Copper go up and down completely randomly.

Pair Corralation between Vale SA and Western Copper

Given the investment horizon of 90 days Vale SA ADR is expected to under-perform the Western Copper. But the stock apears to be less risky and, when comparing its historical volatility, Vale SA ADR is 1.26 times less risky than Western Copper. The stock trades about -0.06 of its potential returns per unit of risk. The Western Copper and is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  114.00  in Western Copper and on September 13, 2024 and sell it today you would lose (5.00) from holding Western Copper and or give up 4.39% of portfolio value over 90 days.

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

Vale SA ADR  vs.  Western Copper and

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 latest weak performance, the Stock's essential indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Western Copper

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Copper and has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Western Copper is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Vale SA and Western Copper

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

The idea behind Vale SA ADR and Western Copper and 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.