Correlation Between Compania and Vale SA
Can any of the company-specific risk be diversified away by investing in both Compania 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 Compania and Vale SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Compania de Transporte and Vale SA, you can compare the effects of market volatilities on Compania 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 Compania with a short position of Vale SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compania and Vale SA.
Diversification Opportunities for Compania and Vale SA
Excellent diversification
The 3 months correlation between Compania and Vale is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Compania de Transporte and Vale SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA and Compania 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 Compania de Transporte 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 Compania i.e., Compania and Vale SA go up and down completely randomly.
Pair Corralation between Compania and Vale SA
Assuming the 90 days trading horizon Compania de Transporte is expected to generate 1.22 times more return on investment than Vale SA. However, Compania is 1.22 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 -0.15 per unit of risk. If you would invest 176,500 in Compania de Transporte on September 2, 2024 and sell it today you would earn a total of 44,500 from holding Compania de Transporte or generate 25.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Compania de Transporte vs. Vale SA
Performance |
| Timeline |
| Compania de Transporte |
| Vale SA |
Compania and Vale SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Compania and Vale SA
The main advantage of trading using opposite Compania and Vale SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Compania 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.| Compania vs. Transportadora de Gas | Compania vs. Harmony Gold Mining | Compania vs. Telecom Argentina | Compania vs. United States Steel |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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