Correlation Between Vale SA and IT Tech
Can any of the company-specific risk be diversified away by investing in both Vale SA and IT Tech 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 IT Tech 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 IT Tech Packaging, you can compare the effects of market volatilities on Vale SA and IT Tech 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 IT Tech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vale SA and IT Tech.
Diversification Opportunities for Vale SA and IT Tech
Excellent diversification
The 3 months correlation between Vale and ITP is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA ADR and IT Tech Packaging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IT Tech Packaging 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 IT Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IT Tech Packaging has no effect on the direction of Vale SA i.e., Vale SA and IT Tech go up and down completely randomly.
Pair Corralation between Vale SA and IT Tech
Given the investment horizon of 90 days Vale SA ADR is expected to under-perform the IT Tech. But the stock apears to be less risky and, when comparing its historical volatility, Vale SA ADR is 3.88 times less risky than IT Tech. The stock trades about -0.03 of its potential returns per unit of risk. The IT Tech Packaging is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 60.00 in IT Tech Packaging on November 1, 2024 and sell it today you would lose (22.70) from holding IT Tech Packaging or give up 37.83% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vale SA ADR vs. IT Tech Packaging
Performance |
| Timeline |
| Vale SA ADR |
| IT Tech Packaging |
Vale SA and IT Tech Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vale SA and IT Tech
The main advantage of trading using opposite Vale SA and IT Tech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vale SA position performs unexpectedly, IT Tech 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 IT Tech will offset losses from the drop in IT Tech'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 |
| IT Tech vs. Mondi PLC ADR | IT Tech vs. Holmen AB ADR | IT Tech vs. Canfor Pulp Products | IT Tech vs. Nine Dragons Paper |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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