Correlation Between Vale SA and Small Cap

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

Diversification Opportunities for Vale SA and Small Cap

0.7

Correlation Coefficient

Vale SA  Small Cap

Poor diversification

The 3 months correlation between Vale and Small is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA ADR and Small Cap Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Stock 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 Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Stock has no effect on the direction of Vale SA i.e., Vale SA and Small Cap go up and down completely randomly.

Pair Corralation between Vale SA and Small Cap

Given the investment horizon of 90 days Vale SA is expected to generate 3.45 times less return on investment than Small Cap. In addition to that, Vale SA is 1.65 times more volatile than Small Cap Stock. It trades about 0.02 of its total potential returns per unit of risk. Small Cap Stock is currently generating about 0.14 per unit of volatility. If you would invest  1,226  in Small Cap Stock on May 2, 2025 and sell it today you would earn a total of  116.00  from holding Small Cap Stock or generate 9.46% return on investment over 90 days.

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

Vale SA ADR  vs.  Small Cap Stock

Vale SA ADR

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vale SA ADR are ranked lower than 1 (%) 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.

Small Cap Stock

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Stock are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Small Cap may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Vale SA and Small Cap

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

The idea behind Vale SA ADR and Small Cap Stock 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.