Correlation Between Vale SA and Anglo American
Can any of the company-specific risk be diversified away by investing in both Vale SA and Anglo American 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 Anglo American 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 Anglo American PLC, you can compare the effects of market volatilities on Vale SA and Anglo American 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 Anglo American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vale SA and Anglo American.
Diversification Opportunities for Vale SA and Anglo American
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Vale and Anglo is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA ADR and Anglo American PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anglo American 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 Anglo American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anglo American PLC has no effect on the direction of Vale SA i.e., Vale SA and Anglo American go up and down completely randomly.
Pair Corralation between Vale SA and Anglo American
Given the investment horizon of 90 days Vale SA ADR is expected to under-perform the Anglo American. But the stock apears to be less risky and, when comparing its historical volatility, Vale SA ADR is 1.32 times less risky than Anglo American. The stock trades about -0.2 of its potential returns per unit of risk. The Anglo American PLC is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest 1,629 in Anglo American PLC on August 28, 2024 and sell it today you would lose (143.00) from holding Anglo American PLC or give up 8.78% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vale SA ADR vs. Anglo American PLC
Performance |
| Timeline |
| Vale SA ADR |
| Anglo American PLC |
Vale SA and Anglo American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vale SA and Anglo American
The main advantage of trading using opposite Vale SA and Anglo American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vale SA position performs unexpectedly, Anglo American 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 Anglo American will offset losses from the drop in Anglo American'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 |
| Anglo American vs. Ascendant Resources | Anglo American vs. Cantex Mine Development | Anglo American vs. Amarc Resources | Anglo American vs. Sterling Metals 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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