Correlation Between Vale SA and Mineral Resources

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Can any of the company-specific risk be diversified away by investing in both Vale SA and Mineral Resources 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 Mineral Resources 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 Mineral Resources Limited, you can compare the effects of market volatilities on Vale SA and Mineral Resources 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 Mineral Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vale SA and Mineral Resources.

Diversification Opportunities for Vale SA and Mineral Resources

-0.68
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Vale and Mineral is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA ADR and Mineral Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mineral Resources 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 Mineral Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mineral Resources has no effect on the direction of Vale SA i.e., Vale SA and Mineral Resources go up and down completely randomly.

Pair Corralation between Vale SA and Mineral Resources

Given the investment horizon of 90 days Vale SA is expected to generate 5.37 times less return on investment than Mineral Resources. In addition to that, Vale SA is 1.59 times more volatile than Mineral Resources Limited. It trades about 0.02 of its total potential returns per unit of risk. Mineral Resources Limited is currently generating about 0.2 per unit of volatility. If you would invest  3,906  in Mineral Resources Limited on February 19, 2024 and sell it today you would earn a total of  514.00  from holding Mineral Resources Limited or generate 13.16% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Vale SA ADR  vs.  Mineral Resources Limited

 Performance 
       Timeline  
Vale SA ADR 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Vale SA ADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Vale SA is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.
Mineral Resources 

Risk-Adjusted Performance

15 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Mineral Resources Limited are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Mineral Resources may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Vale SA and Mineral Resources Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Vale SA and Mineral Resources

The main advantage of trading using opposite Vale SA and Mineral Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vale SA position performs unexpectedly, Mineral Resources 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 Mineral Resources will offset losses from the drop in Mineral Resources' long position.
The idea behind Vale SA ADR and Mineral Resources Limited 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.

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