Correlation Between Vanguard World and Vale SA

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

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

Diversification Opportunities for Vanguard World and Vale SA

0.58

Correlation Coefficient

Vanguard World  Vale SA

Very weak diversification

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

Pair Corralation between Vanguard World and Vale SA

Assuming the 90 days trading horizon Vanguard World is expected to generate 0.16 times more return on investment than Vale SA. However, Vanguard World is 6.18 times less risky than Vale SA. It trades about 0.04 of its potential returns per unit of risk. Vale SA is currently generating about 0.0 per unit of risk. If you would invest  453,429  in Vanguard World on October 5, 2024 and sell it today you would earn a total of  72,572  from holding Vanguard World or generate 16.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	85.6%
Values	Daily Returns

Vanguard World  vs.  Vale SA

Vanguard World

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard World has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Vanguard World is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

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 weak performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Vanguard World and Vale SA

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

The idea behind Vanguard World and Vale 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.