Correlation Between Vale SA and NioCorp Developments

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

Diversification Opportunities for Vale SA and NioCorp Developments

0.61

Correlation Coefficient

Vale SA  NioCorp Developments

Poor diversification

The 3 months correlation between Vale and NioCorp is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA ADR and NioCorp Developments Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NioCorp Developments 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 NioCorp Developments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NioCorp Developments has no effect on the direction of Vale SA i.e., Vale SA and NioCorp Developments go up and down completely randomly.

Pair Corralation between Vale SA and NioCorp Developments

Given the investment horizon of 90 days Vale SA ADR is expected to generate 0.44 times more return on investment than NioCorp Developments. However, Vale SA ADR is 2.29 times less risky than NioCorp Developments. It trades about 0.0 of its potential returns per unit of risk. NioCorp Developments Ltd is currently generating about -0.07 per unit of risk. If you would invest  1,000.00  in Vale SA ADR on August 31, 2024 and sell it today you would lose (13.00) from holding Vale SA ADR or give up 1.3% 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.  NioCorp Developments Ltd

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.

NioCorp Developments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NioCorp Developments Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's fundamental drivers 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.

Pair Trading with Vale SA and NioCorp Developments

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

The idea behind Vale SA ADR and NioCorp Developments Ltd 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.