Correlation Between Vale SA and Alpha Lithium

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

Diversification Opportunities for Vale SA and Alpha Lithium

0.11

Correlation Coefficient

Vale SA  Alpha Lithium

Average diversification

The 3 months correlation between Vale and Alpha is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA ADR and Alpha Lithium Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alpha Lithium Corp 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 Alpha Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alpha Lithium Corp has no effect on the direction of Vale SA i.e., Vale SA and Alpha Lithium go up and down completely randomly.

Pair Corralation between Vale SA and Alpha Lithium

Given the investment horizon of 90 days Vale SA ADR is expected to under-perform the Alpha Lithium. But the stock apears to be less risky and, when comparing its historical volatility, Vale SA ADR is 1.64 times less risky than Alpha Lithium. The stock trades about -0.03 of its potential returns per unit of risk. The Alpha Lithium Corp is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  69.00  in Alpha Lithium Corp on August 27, 2024 and sell it today you would earn a total of  38.00  from holding Alpha Lithium Corp or generate 55.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	31.85%
Values	Daily Returns

Vale SA ADR  vs.  Alpha Lithium Corp

Vale SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vale SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's essential indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Alpha Lithium Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alpha Lithium Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, Alpha Lithium is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Vale SA and Alpha Lithium

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

The idea behind Vale SA ADR and Alpha Lithium Corp 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.