Correlation Between Vale SA and Compass Minerals
Can any of the company-specific risk be diversified away by investing in both Vale SA and Compass Minerals 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 Compass Minerals 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 Compass Minerals International, you can compare the effects of market volatilities on Vale SA and Compass Minerals 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 Compass Minerals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vale SA and Compass Minerals.
Diversification Opportunities for Vale SA and Compass Minerals
0.18 | Correlation Coefficient |
Average diversification
The 3 months correlation between Vale and Compass is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA ADR and Compass Minerals International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass Minerals Int 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 Compass Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compass Minerals Int has no effect on the direction of Vale SA i.e., Vale SA and Compass Minerals go up and down completely randomly.
Pair Corralation between Vale SA and Compass Minerals
Given the investment horizon of 90 days Vale SA ADR is expected to under-perform the Compass Minerals. But the stock apears to be less risky and, when comparing its historical volatility, Vale SA ADR is 2.61 times less risky than Compass Minerals. The stock trades about -0.08 of its potential returns per unit of risk. The Compass Minerals International is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 1,359 in Compass Minerals International on August 24, 2024 and sell it today you would earn a total of 111.00 from holding Compass Minerals International or generate 8.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vale SA ADR vs. Compass Minerals International
Performance |
| Timeline |
| Vale SA ADR |
| Compass Minerals Int |
Vale SA and Compass Minerals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vale SA and Compass Minerals
The main advantage of trading using opposite Vale SA and Compass Minerals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vale SA position performs unexpectedly, Compass Minerals 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 Compass Minerals will offset losses from the drop in Compass Minerals' 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 |
| Compass Minerals vs. MP Materials Corp | Compass Minerals vs. NioCorp Developments Ltd | Compass Minerals vs. Vale SA ADR | Compass Minerals vs. Vizsla Resources 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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