Correlation Between Vale SA and Erdene Resource
Can any of the company-specific risk be diversified away by investing in both Vale SA and Erdene Resource 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 Erdene Resource 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 Erdene Resource Development, you can compare the effects of market volatilities on Vale SA and Erdene Resource 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 Erdene Resource. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vale SA and Erdene Resource.
Diversification Opportunities for Vale SA and Erdene Resource
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Vale and Erdene is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA ADR and Erdene Resource Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Erdene Resource Deve 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 Erdene Resource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Erdene Resource Deve has no effect on the direction of Vale SA i.e., Vale SA and Erdene Resource go up and down completely randomly.
Pair Corralation between Vale SA and Erdene Resource
Given the investment horizon of 90 days Vale SA ADR is expected to under-perform the Erdene Resource. But the stock apears to be less risky and, when comparing its historical volatility, Vale SA ADR is 2.94 times less risky than Erdene Resource. The stock trades about -0.26 of its potential returns per unit of risk. The Erdene Resource Development is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 40.00 in Erdene Resource Development on October 15, 2024 and sell it today you would earn a total of 0.00 from holding Erdene Resource Development or generate 0.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vale SA ADR vs. Erdene Resource Development
Performance |
| Timeline |
| Vale SA ADR |
| Erdene Resource Deve |
Vale SA and Erdene Resource Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vale SA and Erdene Resource
The main advantage of trading using opposite Vale SA and Erdene Resource positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vale SA position performs unexpectedly, Erdene Resource 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 Erdene Resource will offset losses from the drop in Erdene Resource'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 |
| Erdene Resource vs. Norra Metals Corp | Erdene Resource vs. E79 Resources Corp | Erdene Resource vs. Voltage Metals Corp | Erdene Resource vs. Cantex Mine Development |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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