Correlation Between Vale SA and South32 ADR
Can any of the company-specific risk be diversified away by investing in both Vale SA and South32 ADR 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 South32 ADR 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 South32 ADR, you can compare the effects of market volatilities on Vale SA and South32 ADR 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 South32 ADR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vale SA and South32 ADR.
Diversification Opportunities for Vale SA and South32 ADR
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Vale and South32 is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA ADR and South32 ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on South32 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 South32 ADR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of South32 ADR has no effect on the direction of Vale SA i.e., Vale SA and South32 ADR go up and down completely randomly.
Pair Corralation between Vale SA and South32 ADR
Given the investment horizon of 90 days Vale SA ADR is expected to generate 0.74 times more return on investment than South32 ADR. However, Vale SA ADR is 1.36 times less risky than South32 ADR. It trades about 0.21 of its potential returns per unit of risk. South32 ADR is currently generating about -0.02 per unit of risk. If you would invest 888.00 in Vale SA ADR on November 2, 2024 and sell it today you would earn a total of 51.00 from holding Vale SA ADR or generate 5.74% 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. South32 ADR
Performance |
| Timeline |
| Vale SA ADR |
| South32 ADR |
Vale SA and South32 ADR Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vale SA and South32 ADR
The main advantage of trading using opposite Vale SA and South32 ADR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vale SA position performs unexpectedly, South32 ADR 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 South32 ADR will offset losses from the drop in South32 ADR'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 |
| South32 ADR vs. Liontown Resources Limited | South32 ADR vs. IGO Limited | South32 ADR vs. Anglo American PLC | South32 ADR vs. IGO Limited |
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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.
Other Complementary Tools
| Portfolio Backtesting Avoid under-diversification and over-optimization by backtesting your portfolios | |
| Portfolio Holdings Check your current holdings and cash postion to detemine if your portfolio needs rebalancing | |
| Volatility Analysis Get historical volatility and risk analysis based on latest market data | |
| Options Analysis Analyze and evaluate options and option chains as a potential hedge for your portfolios | |
| Share Portfolio Track or share privately all of your investments from the convenience of any device |