Correlation Between Fortescue Metals and Vale SA
Can any of the company-specific risk be diversified away by investing in both Fortescue Metals 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 Fortescue Metals and Vale SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fortescue Metals Group and Vale SA ADR, you can compare the effects of market volatilities on Fortescue Metals 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 Fortescue Metals with a short position of Vale SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fortescue Metals and Vale SA.
Diversification Opportunities for Fortescue Metals and Vale SA
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Fortescue and Vale is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Fortescue Metals Group and Vale SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA ADR and Fortescue Metals 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 Fortescue Metals Group 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 ADR has no effect on the direction of Fortescue Metals i.e., Fortescue Metals and Vale SA go up and down completely randomly.
Pair Corralation between Fortescue Metals and Vale SA
Assuming the 90 days horizon Fortescue Metals Group is expected to generate 1.31 times more return on investment than Vale SA. However, Fortescue Metals is 1.31 times more volatile than Vale SA ADR. It trades about -0.04 of its potential returns per unit of risk. Vale SA ADR is currently generating about -0.19 per unit of risk. If you would invest 1,254 in Fortescue Metals Group on September 1, 2024 and sell it today you would lose (34.00) from holding Fortescue Metals Group or give up 2.71% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fortescue Metals Group vs. Vale SA ADR
Performance |
| Timeline |
| Fortescue Metals |
| Vale SA ADR |
Fortescue Metals and Vale SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fortescue Metals and Vale SA
The main advantage of trading using opposite Fortescue Metals and Vale SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fortescue Metals 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.| Fortescue Metals vs. IGO Limited | Fortescue Metals vs. Qubec Nickel Corp | Fortescue Metals vs. Nickel Mines Limited | Fortescue Metals vs. Mineral Resources Limited |
| Vale SA vs. BHP Group Limited | Vale SA vs. Teck Resources Ltd | Vale SA vs. Lithium Americas Corp | Vale SA vs. MP Materials Corp |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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