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, 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
0.3 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Fortescue and Vale is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Fortescue Metals Group and Vale SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA 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 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 1.35 times more return on investment than Vale SA. However, Fortescue Metals is 1.35 times more volatile than Vale SA. It trades about 0.15 of its potential returns per unit of risk. Vale SA is currently generating about 0.05 per unit of risk. If you would invest 1,106 in Fortescue Metals Group on October 25, 2024 and sell it today you would earn a total of 45.00 from holding Fortescue Metals Group or generate 4.07% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fortescue Metals Group vs. Vale SA
Performance |
| Timeline |
| Fortescue Metals |
| Vale SA |
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. BHP Group Limited | Fortescue Metals vs. BHP Group Limited | Fortescue Metals vs. Rio Tinto Group | Fortescue Metals vs. Vale SA |
| Vale SA vs. Penta Ocean Construction Co | Vale SA vs. Titan Machinery | Vale SA vs. Mitsui Chemicals | Vale SA vs. Benchmark Electronics |
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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
Other Complementary Tools
| Idea Optimizer Use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio | |
| Correlation Analysis Reduce portfolio risk simply by holding instruments which are not perfectly correlated | |
| Commodity Channel Use Commodity Channel Index to analyze current equity momentum | |
| Instant Ratings Determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance | |
| Price Ceiling Movement Calculate and plot Price Ceiling Movement for different equity instruments |