Correlation Between Vale SA and EMX Royalty

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

Diversification Opportunities for Vale SA and EMX Royalty

0.44

Correlation Coefficient

Vale SA  EMX Royalty

Very weak diversification

The 3 months correlation between Vale and EMX is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA ADR and EMX Royalty Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EMX Royalty 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 EMX Royalty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EMX Royalty Corp has no effect on the direction of Vale SA i.e., Vale SA and EMX Royalty go up and down completely randomly.

Pair Corralation between Vale SA and EMX Royalty

Given the investment horizon of 90 days Vale SA ADR is expected to generate 1.05 times more return on investment than EMX Royalty. However, Vale SA is 1.05 times more volatile than EMX Royalty Corp. It trades about -0.07 of its potential returns per unit of risk. EMX Royalty Corp is currently generating about -0.23 per unit of risk. If you would invest  1,041  in Vale SA ADR on August 24, 2024 and sell it today you would lose (39.00) from holding Vale SA ADR or give up 3.75% of portfolio value over 90 days.

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

Vale SA ADR  vs.  EMX Royalty 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 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.

EMX Royalty Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EMX Royalty Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, EMX Royalty 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 EMX Royalty

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

The idea behind Vale SA ADR and EMX Royalty 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.