Correlation Between Vale SA and Companhia Siderrgica

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

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

Diversification Opportunities for Vale SA and Companhia Siderrgica

0.75

Correlation Coefficient

Vale SA  Companhia Siderrgica

Poor diversification

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

Pair Corralation between Vale SA and Companhia Siderrgica

Assuming the 90 days trading horizon Vale SA is expected to generate 1.2 times less return on investment than Companhia Siderrgica. But when comparing it to its historical volatility, Vale SA is 1.69 times less risky than Companhia Siderrgica. It trades about 0.05 of its potential returns per unit of risk. Companhia Siderrgica Nacional is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,079  in Companhia Siderrgica Nacional on September 3, 2024 and sell it today you would earn a total of  37.00  from holding Companhia Siderrgica Nacional or generate 3.43% return on investment over 90 days.

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

Vale SA  vs.  Companhia Siderrgica Nacional

Vale SA

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vale SA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

Companhia Siderrgica

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Companhia Siderrgica Nacional are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Companhia Siderrgica 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 Companhia Siderrgica

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

The idea behind Vale SA and Companhia Siderrgica Nacional 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..