Correlation Between Vale SA and Rio Tinto
Can any of the company-specific risk be diversified away by investing in both Vale SA and Rio Tinto 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 Rio Tinto 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 Rio Tinto ADR, you can compare the effects of market volatilities on Vale SA and Rio Tinto 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 Rio Tinto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vale SA and Rio Tinto.
Diversification Opportunities for Vale SA and Rio Tinto
Poor diversification
The 3 months correlation between Vale and Rio is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA ADR and Rio Tinto ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto ADR 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 Rio Tinto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rio Tinto ADR has no effect on the direction of Vale SA i.e., Vale SA and Rio Tinto go up and down completely randomly.
Pair Corralation between Vale SA and Rio Tinto
Given the investment horizon of 90 days Vale SA ADR is expected to generate 1.03 times more return on investment than Rio Tinto. However, Vale SA is 1.03 times more volatile than Rio Tinto ADR. It trades about 0.33 of its potential returns per unit of risk. Rio Tinto ADR is currently generating about 0.14 per unit of risk. If you would invest 894.00 in Vale SA ADR on November 18, 2024 and sell it today you would earn a total of 82.00 from holding Vale SA ADR or generate 9.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vale SA ADR vs. Rio Tinto ADR
Performance |
| Timeline |
| Vale SA ADR |
| Rio Tinto ADR |
Vale SA and Rio Tinto Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vale SA and Rio Tinto
The main advantage of trading using opposite Vale SA and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vale SA position performs unexpectedly, Rio Tinto 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 Rio Tinto will offset losses from the drop in Rio Tinto'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 |
| Rio Tinto vs. Vale SA ADR | Rio Tinto vs. Teck Resources Ltd | Rio Tinto vs. MP Materials Corp | Rio Tinto vs. Lithium Americas 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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