Correlation Between Vale SA and Glencore PLC
Can any of the company-specific risk be diversified away by investing in both Vale SA and Glencore PLC 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 Glencore PLC 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 Glencore PLC, you can compare the effects of market volatilities on Vale SA and Glencore PLC 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 Glencore PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vale SA and Glencore PLC.
Diversification Opportunities for Vale SA and Glencore PLC
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Vale and Glencore is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA ADR and Glencore PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Glencore PLC 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 Glencore PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Glencore PLC has no effect on the direction of Vale SA i.e., Vale SA and Glencore PLC go up and down completely randomly.
Pair Corralation between Vale SA and Glencore PLC
Given the investment horizon of 90 days Vale SA ADR is expected to under-perform the Glencore PLC. But the stock apears to be less risky and, when comparing its historical volatility, Vale SA ADR is 2.05 times less risky than Glencore PLC. The stock trades about -0.03 of its potential returns per unit of risk. The Glencore PLC is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 446.00 in Glencore PLC on October 24, 2024 and sell it today you would earn a total of 19.00 from holding Glencore PLC or generate 4.26% 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. Glencore PLC
Performance |
| Timeline |
| Vale SA ADR |
| Glencore PLC |
Vale SA and Glencore PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vale SA and Glencore PLC
The main advantage of trading using opposite Vale SA and Glencore PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vale SA position performs unexpectedly, Glencore PLC 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 Glencore PLC will offset losses from the drop in Glencore PLC'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 |
| Glencore PLC vs. Anglo American PLC | Glencore PLC vs. Teck Resources Ltd | Glencore PLC vs. BHP Group Limited | Glencore PLC vs. Vale SA ADR |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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