Correlation Between Vale SA and Molinos Rio

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

By analyzing existing cross correlation between Vale SA and Molinos Rio de, you can compare the effects of market volatilities on Vale SA and Molinos Rio 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 Molinos Rio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vale SA and Molinos Rio.

Diversification Opportunities for Vale SA and Molinos Rio

0.64

Correlation Coefficient

Vale SA  Molinos Rio

Poor diversification

The 3 months correlation between Vale and Molinos is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA and Molinos Rio de in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Molinos Rio de 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 Molinos Rio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Molinos Rio de has no effect on the direction of Vale SA i.e., Vale SA and Molinos Rio go up and down completely randomly.

Pair Corralation between Vale SA and Molinos Rio

Assuming the 90 days trading horizon Vale SA is expected to under-perform the Molinos Rio. In addition to that, Vale SA is 1.71 times more volatile than Molinos Rio de. It trades about -0.22 of its total potential returns per unit of risk. Molinos Rio de is currently generating about 0.31 per unit of volatility. If you would invest  305,000  in Molinos Rio de on August 25, 2024 and sell it today you would earn a total of  25,000  from holding Molinos Rio de or generate 8.2% return on investment over 90 days.

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

Vale SA  vs.  Molinos Rio de

Vale SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vale SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Molinos Rio de

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Molinos Rio de has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Molinos Rio is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vale SA and Molinos Rio

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

The idea behind Vale SA and Molinos Rio de 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.