Correlation Between Vale SA and Ameriwest Lithium
Can any of the company-specific risk be diversified away by investing in both Vale SA and Ameriwest 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 Ameriwest 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 Ameriwest Lithium, you can compare the effects of market volatilities on Vale SA and Ameriwest 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 Ameriwest Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vale SA and Ameriwest Lithium.
Diversification Opportunities for Vale SA and Ameriwest Lithium
0.25 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Vale and Ameriwest is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA ADR and Ameriwest Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ameriwest Lithium 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 Ameriwest Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ameriwest Lithium has no effect on the direction of Vale SA i.e., Vale SA and Ameriwest Lithium go up and down completely randomly.
Pair Corralation between Vale SA and Ameriwest Lithium
Given the investment horizon of 90 days Vale SA ADR is expected to under-perform the Ameriwest Lithium. But the stock apears to be less risky and, when comparing its historical volatility, Vale SA ADR is 3.9 times less risky than Ameriwest Lithium. The stock trades about -0.21 of its potential returns per unit of risk. The Ameriwest Lithium is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest 12.00 in Ameriwest Lithium on August 27, 2024 and sell it today you would lose (1.00) from holding Ameriwest Lithium or give up 8.33% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vale SA ADR vs. Ameriwest Lithium
Performance |
| Timeline |
| Vale SA ADR |
| Ameriwest Lithium |
Vale SA and Ameriwest Lithium Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vale SA and Ameriwest Lithium
The main advantage of trading using opposite Vale SA and Ameriwest Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vale SA position performs unexpectedly, Ameriwest 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 Ameriwest Lithium will offset losses from the drop in Ameriwest 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 |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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