Correlation Between Vale SA and American Lithium
Can any of the company-specific risk be diversified away by investing in both Vale SA and American Lithium 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 American Lithium into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vale SA ADR and American Lithium Corp, you can compare the effects of market volatilities on Vale SA and American Lithium 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 American Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vale SA and American Lithium.
Diversification Opportunities for Vale SA and American Lithium
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Vale and American is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA ADR and American Lithium Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Lithium Corp 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 ADR are associated (or correlated) with American Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Lithium Corp has no effect on the direction of Vale SA i.e., Vale SA and American Lithium go up and down completely randomly.
Pair Corralation between Vale SA and American Lithium
Given the investment horizon of 90 days Vale SA ADR is expected to generate 0.45 times more return on investment than American Lithium. However, Vale SA ADR is 2.22 times less risky than American Lithium. It trades about -0.21 of its potential returns per unit of risk. American Lithium Corp is currently generating about -0.11 per unit of risk. If you would invest 1,081 in Vale SA ADR on August 31, 2024 and sell it today you would lose (94.00) from holding Vale SA ADR or give up 8.7% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vale SA ADR vs. American Lithium Corp
Performance |
| Timeline |
| Vale SA ADR |
| American Lithium Corp |
Vale SA and American Lithium Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vale SA and American Lithium
The main advantage of trading using opposite Vale SA and American Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vale SA position performs unexpectedly, American Lithium 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 American Lithium will offset losses from the drop in American Lithium's long position.| Vale SA vs. BHP Group Limited | Vale SA vs. Teck Resources Ltd | Vale SA vs. Lithium Americas Corp | Vale SA vs. MP Materials Corp |
| American Lithium vs. Olympic Steel | American Lithium vs. Kaiser Aluminum | American Lithium vs. Diageo PLC ADR | American Lithium vs. Century Aluminum |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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