Correlation Between Vale SA and Metrovacesa

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

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

Diversification Opportunities for Vale SA and Metrovacesa

0.7

Correlation Coefficient

Vale SA  Metrovacesa

Poor diversification

The 3 months correlation between Vale and Metrovacesa is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA and Metrovacesa SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metrovacesa 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 Metrovacesa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metrovacesa SA has no effect on the direction of Vale SA i.e., Vale SA and Metrovacesa go up and down completely randomly.

Pair Corralation between Vale SA and Metrovacesa

Assuming the 90 days trading horizon Vale SA is expected to generate 4.28 times more return on investment than Metrovacesa. However, Vale SA is 4.28 times more volatile than Metrovacesa SA. It trades about 0.07 of its potential returns per unit of risk. Metrovacesa SA is currently generating about 0.22 per unit of risk. If you would invest  830.00  in Vale SA on December 31, 2024 and sell it today you would earn a total of  116.00  from holding Vale SA or generate 13.98% 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.  Metrovacesa SA

Vale SA

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vale SA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, Vale SA displayed solid returns over the last few months and may actually be approaching a breakup point.

Metrovacesa SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Metrovacesa SA are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Metrovacesa exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vale SA and Metrovacesa

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

The idea behind Vale SA and Metrovacesa 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.