Correlation Between Vale SA and BRF SA

Can any of the company-specific risk be diversified away by investing in both Vale SA and BRF SA 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 BRF SA into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Vale SA and BRF SA, you can compare the effects of market volatilities on Vale SA and BRF SA 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 BRF SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vale SA and BRF SA.

Diversification Opportunities for Vale SA and BRF SA

-0.24

Correlation Coefficient

Vale SA  BRF SA

Very good diversification

The 3 months correlation between Vale and BRF is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA and BRF SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BRF SA 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 are associated (or correlated) with BRF SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BRF SA has no effect on the direction of Vale SA i.e., Vale SA and BRF SA go up and down completely randomly.

Pair Corralation between Vale SA and BRF SA

Assuming the 90 days trading horizon Vale SA is expected to generate 4.09 times less return on investment than BRF SA. But when comparing it to its historical volatility, Vale SA is 1.22 times less risky than BRF SA. It trades about 0.01 of its potential returns per unit of risk. BRF SA is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,409  in BRF SA on September 2, 2024 and sell it today you would earn a total of  72.00  from holding BRF SA or generate 2.99% return on investment over 90 days.

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

Vale SA  vs.  BRF SA

Vale SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vale SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Vale SA is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

BRF SA

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BRF SA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, BRF SA is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Vale SA and BRF SA

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

The idea behind Vale SA and BRF SA 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.