Correlation Between Vale SA and NYSE Composite
Can any of the company-specific risk be diversified away by investing in both Vale SA and NYSE Composite 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 NYSE Composite into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vale SA and NYSE Composite, you can compare the effects of market volatilities on Vale SA and NYSE Composite 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 NYSE Composite. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vale SA and NYSE Composite.
Diversification Opportunities for Vale SA and NYSE Composite
-0.42 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Vale and NYSE is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA and NYSE Composite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NYSE Composite 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 NYSE Composite. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NYSE Composite has no effect on the direction of Vale SA i.e., Vale SA and NYSE Composite go up and down completely randomly.
Pair Corralation between Vale SA and NYSE Composite
Assuming the 90 days trading horizon Vale SA is expected to generate 3.83 times more return on investment than NYSE Composite. However, Vale SA is 3.83 times more volatile than NYSE Composite. It trades about 0.26 of its potential returns per unit of risk. NYSE Composite is currently generating about 0.39 per unit of risk. If you would invest 647,300 in Vale SA on February 20, 2024 and sell it today you would earn a total of 70,350 from holding Vale SA or generate 10.87% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Very Weak |
Accuracy | 95.24% |
Values | Daily Returns |
Vale SA vs. NYSE Composite
Performance |
Timeline |
Vale SA and NYSE Composite Volatility Contrast
Predicted Return Density |
Returns |
Vale SA
Pair trading matchups for Vale SA
NYSE Composite
Pair trading matchups for NYSE Composite
Pair Trading with Vale SA and NYSE Composite
The main advantage of trading using opposite Vale SA and NYSE Composite positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vale SA position performs unexpectedly, NYSE Composite 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 NYSE Composite will offset losses from the drop in NYSE Composite's long position.The idea behind Vale SA and NYSE Composite 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.NYSE Composite vs. Universal Technical Institute | NYSE Composite vs. American Airlines Group | NYSE Composite vs. Global Crossing Airlines | NYSE Composite vs. Pearson PLC ADR |
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 Anywhere module to track or share privately all of your investments from the convenience of any device.
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