Correlation Between Vale SA and Itasa Investimentos

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

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

Diversification Opportunities for Vale SA and Itasa Investimentos

0.58

Correlation Coefficient

Vale SA  Itasa Investimentos

Very weak diversification

The 3 months correlation between Vale and Itasa is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA and Itasa Investimentos in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Itasa Investimentos 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 Itasa Investimentos. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Itasa Investimentos has no effect on the direction of Vale SA i.e., Vale SA and Itasa Investimentos go up and down completely randomly.

Pair Corralation between Vale SA and Itasa Investimentos

Assuming the 90 days trading horizon Vale SA is expected to generate 1.14 times less return on investment than Itasa Investimentos. But when comparing it to its historical volatility, Vale SA is 1.13 times less risky than Itasa Investimentos. It trades about 0.13 of its potential returns per unit of risk. Itasa Investimentos is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  869.00  in Itasa Investimentos on December 27, 2024 and sell it today you would earn a total of  103.00  from holding Itasa Investimentos or generate 11.85% return on investment over 90 days.

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

Vale SA  vs.  Itasa Investimentos

Vale SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vale SA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Vale SA may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Itasa Investimentos

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Itasa Investimentos are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Itasa Investimentos may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Vale SA and Itasa Investimentos

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

The idea behind Vale SA and Itasa Investimentos 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.

Check out your portfolio center.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.