Correlation Between Vale SA and Rio Tinto
Can any of the company-specific risk be diversified away by investing in both Vale SA and Rio Tinto 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 Rio Tinto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vale SA and Rio Tinto Group, you can compare the effects of market volatilities on Vale SA and Rio Tinto 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 Rio Tinto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vale SA and Rio Tinto.
Diversification Opportunities for Vale SA and Rio Tinto
Very weak diversification
The 3 months correlation between Vale and Rio is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA and Rio Tinto Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto Group 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 Rio Tinto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rio Tinto Group has no effect on the direction of Vale SA i.e., Vale SA and Rio Tinto go up and down completely randomly.
Pair Corralation between Vale SA and Rio Tinto
Assuming the 90 days trading horizon Vale SA is expected to generate 2.99 times more return on investment than Rio Tinto. However, Vale SA is 2.99 times more volatile than Rio Tinto Group. It trades about 0.01 of its potential returns per unit of risk. Rio Tinto Group is currently generating about 0.01 per unit of risk. If you would invest 33,000 in Vale SA on September 23, 2024 and sell it today you would lose (14,800) from holding Vale SA or give up 44.85% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 85.71% |
Values | Daily Returns |
Vale SA vs. Rio Tinto Group
Performance |
Timeline |
Vale SA |
Rio Tinto Group |
Vale SA and Rio Tinto Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Vale SA and Rio Tinto
The main advantage of trading using opposite Vale SA and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vale SA position performs unexpectedly, Rio Tinto 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 Rio Tinto will offset losses from the drop in Rio Tinto's long position.Vale SA vs. BHP Group | Vale SA vs. Rio Tinto Group | Vale SA vs. Glencore plc | Vale SA vs. Cleveland Cliffs |
Rio Tinto vs. BHP Group | Rio Tinto vs. Vale SA | Rio Tinto vs. Glencore plc | Rio Tinto vs. Cleveland Cliffs |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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