Correlation Between NYSE Composite and Vale SA

Can any of the company-specific risk be diversified away by investing in both NYSE Composite and Vale SA 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 NYSE Composite and Vale SA into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between NYSE Composite and Vale SA ADR, you can compare the effects of market volatilities on NYSE Composite and Vale SA 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 NYSE Composite with a short position of Vale SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of NYSE Composite and Vale SA.

Diversification Opportunities for NYSE Composite and Vale SA

-0.63

Correlation Coefficient

NYSE Composite  Vale SA

Excellent diversification

The 3 months correlation between NYSE and Vale is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Vale SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA ADR and NYSE Composite 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 NYSE Composite are associated (or correlated) with Vale SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vale SA ADR has no effect on the direction of NYSE Composite i.e., NYSE Composite and Vale SA go up and down completely randomly.

Pair Corralation between NYSE Composite and Vale SA

Assuming the 90 days trading horizon NYSE Composite is expected to under-perform the Vale SA. But the index apears to be less risky and, when comparing its historical volatility, NYSE Composite is 3.03 times less risky than Vale SA. The index trades about -0.18 of its potential returns per unit of risk. The Vale SA ADR is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,211  in Vale SA ADR on January 30, 2024 and sell it today you would earn a total of  29.00  from holding Vale SA ADR or generate 2.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

NYSE Composite  vs.  Vale SA ADR

Pair Trading with NYSE Composite and Vale SA

The main advantage of trading using opposite NYSE Composite and Vale SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NYSE Composite position performs unexpectedly, Vale SA 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 Vale SA will offset losses from the drop in Vale SA's long position.

The idea behind NYSE Composite and Vale SA ADR pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.