Correlation Between Vale SA and Essential Properties

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

Diversification Opportunities for Vale SA and Essential Properties

-0.5

Correlation Coefficient

Vale SA  Essential Properties

Very good diversification

The 3 months correlation between Vale and Essential is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA ADR and Essential Properties Realty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essential Properties 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 Essential Properties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essential Properties has no effect on the direction of Vale SA i.e., Vale SA and Essential Properties go up and down completely randomly.

Pair Corralation between Vale SA and Essential Properties

Given the investment horizon of 90 days Vale SA ADR is expected to generate 1.66 times more return on investment than Essential Properties. However, Vale SA is 1.66 times more volatile than Essential Properties Realty. It trades about 0.05 of its potential returns per unit of risk. Essential Properties Realty is currently generating about -0.05 per unit of risk. If you would invest  931.00  in Vale SA ADR on May 5, 2025 and sell it today you would earn a total of  40.00  from holding Vale SA ADR or generate 4.3% return on investment over 90 days.

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

Vale SA ADR  vs.  Essential Properties Realty

Vale SA ADR

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vale SA ADR are ranked lower than 3 (%) 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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Essential Properties

Risk-Adjusted Performance

Very Weak

Over the last 90 days Essential Properties Realty has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Essential Properties is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Vale SA and Essential Properties

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

The idea behind Vale SA ADR and Essential Properties Realty 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 Global Correlations module to find global opportunities by holding instruments from different markets.