Correlation Between Vale SA and Amerigo Resources

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

Diversification Opportunities for Vale SA and Amerigo Resources

0.76

Correlation Coefficient

Vale SA  Amerigo Resources

Poor diversification

The 3 months correlation between Vale and Amerigo is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA ADR and Amerigo Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amerigo 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 Amerigo Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amerigo Resources has no effect on the direction of Vale SA i.e., Vale SA and Amerigo Resources go up and down completely randomly.

Pair Corralation between Vale SA and Amerigo Resources

Given the investment horizon of 90 days Vale SA ADR is expected to under-perform the Amerigo Resources. But the stock apears to be less risky and, when comparing its historical volatility, Vale SA ADR is 1.06 times less risky than Amerigo Resources. The stock trades about -0.16 of its potential returns per unit of risk. The Amerigo Resources is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  130.00  in Amerigo Resources on August 20, 2024 and sell it today you would lose (7.00) from holding Amerigo Resources or give up 5.38% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Vale SA ADR  vs.  Amerigo Resources

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 rather sound essential indicators, Vale SA is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Amerigo Resources

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Vale SA and Amerigo Resources

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

The idea behind Vale SA ADR and Amerigo Resources 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.