Correlation Between Vale SA and Nouveau Monde

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

Diversification Opportunities for Vale SA and Nouveau Monde

-0.61

Correlation Coefficient

Vale SA  Nouveau Monde

Excellent diversification

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

Pair Corralation between Vale SA and Nouveau Monde

Given the investment horizon of 90 days Vale SA ADR is expected to generate 0.37 times more return on investment than Nouveau Monde. However, Vale SA ADR is 2.72 times less risky than Nouveau Monde. It trades about 0.08 of its potential returns per unit of risk. Nouveau Monde Graphite is currently generating about -0.15 per unit of risk. If you would invest  824.00  in Vale SA ADR on January 7, 2025 and sell it today you would earn a total of  66.00  from holding Vale SA ADR or generate 8.01% return on investment over 90 days.

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

Vale SA ADR  vs.  Nouveau Monde Graphite

Vale SA ADR

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vale SA ADR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak essential indicators, Vale SA may actually be approaching a critical reversion point that can send shares even higher in May 2025.

Nouveau Monde Graphite

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nouveau Monde Graphite has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's primary indicators remain nearly stable which may send shares a bit higher in May 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Vale SA and Nouveau Monde

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

The idea behind Vale SA ADR and Nouveau Monde Graphite 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.