Correlation Between Peninsula Energy and Vale SA
Can any of the company-specific risk be diversified away by investing in both Peninsula Energy 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 Peninsula Energy and Vale SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Peninsula Energy Limited and Vale SA, you can compare the effects of market volatilities on Peninsula Energy 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 Peninsula Energy with a short position of Vale SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Peninsula Energy and Vale SA.
Diversification Opportunities for Peninsula Energy and Vale SA
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Peninsula and Vale is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Peninsula Energy Limited and Vale SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA and Peninsula Energy 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 Peninsula Energy Limited 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 Peninsula Energy i.e., Peninsula Energy and Vale SA go up and down completely randomly.
Pair Corralation between Peninsula Energy and Vale SA
Assuming the 90 days horizon Peninsula Energy Limited is expected to generate 5.06 times more return on investment than Vale SA. However, Peninsula Energy is 5.06 times more volatile than Vale SA. It trades about 0.14 of its potential returns per unit of risk. Vale SA is currently generating about -0.28 per unit of risk. If you would invest 67.00 in Peninsula Energy Limited on October 17, 2024 and sell it today you would earn a total of 9.00 from holding Peninsula Energy Limited or generate 13.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Peninsula Energy Limited vs. Vale SA
Performance |
| Timeline |
| Peninsula Energy |
| Vale SA |
Peninsula Energy and Vale SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Peninsula Energy and Vale SA
The main advantage of trading using opposite Peninsula Energy and Vale SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Peninsula Energy 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.| Peninsula Energy vs. BHP Group Limited | Peninsula Energy vs. BHP Group Limited | Peninsula Energy vs. Rio Tinto Group | Peninsula Energy vs. Rio Tinto Group |
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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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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