Can any of the company-specific risk be diversified away by investing in both Vale SA and Zijin Mining 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 Zijin Mining into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vale SA and Zijin Mining Group, you can compare the effects of market volatilities on Vale SA and Zijin Mining 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 Zijin Mining. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vale SA and Zijin Mining.
Diversification Opportunities for Vale SA and Zijin Mining
The 3 months correlation between Vale and Zijin is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA and Zijin Mining Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zijin Mining Group 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 are associated (or correlated) with Zijin Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zijin Mining Group has no effect on the direction of Vale SA i.e., Vale SA and Zijin Mining go up and down completely randomly.
Assuming the 90 days trading horizon Vale SA is expected to generate 67.31 times less return on investment than Zijin Mining. But when comparing it to its historical volatility, Vale SA is 1.97 times less risky than Zijin Mining. It trades about 0.0 of its potential returns per unit of risk. Zijin Mining Group is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 177.00 in Zijin Mining Group on March 6, 2024 and sell it today you would earn a total of 17.00 from holding Zijin Mining Group or generate 9.6% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Vale SA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Vale SA reported solid returns over the last few months and may actually be approaching a breakup point.
Compared to the overall equity markets, risk-adjusted returns on investments in Zijin Mining Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Zijin Mining reported solid returns over the last few months and may actually be approaching a breakup point.