Correlation Between CN MODERN and Vale SA

Can any of the company-specific risk be diversified away by investing in both CN MODERN and Vale SA 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 CN MODERN and Vale SA into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CN MODERN DAIRY and Vale SA, you can compare the effects of market volatilities on CN MODERN and Vale SA 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 CN MODERN with a short position of Vale SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of CN MODERN and Vale SA.

Diversification Opportunities for CN MODERN and Vale SA

0.47

Correlation Coefficient

CN MODERN  Vale SA

Very weak diversification

The 3 months correlation between 07M and Vale is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding CN MODERN DAIRY and Vale SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA and CN MODERN 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 CN MODERN DAIRY are associated (or correlated) with Vale SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vale SA has no effect on the direction of CN MODERN i.e., CN MODERN and Vale SA go up and down completely randomly.

Pair Corralation between CN MODERN and Vale SA

Assuming the 90 days trading horizon CN MODERN DAIRY is expected to under-perform the Vale SA. In addition to that, CN MODERN is 1.15 times more volatile than Vale SA. It trades about -0.04 of its total potential returns per unit of risk. Vale SA is currently generating about -0.04 per unit of volatility. If you would invest  956.00  in Vale SA on September 12, 2024 and sell it today you would lose (20.00) from holding Vale SA or give up 2.09% of portfolio value over 90 days.

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

CN MODERN DAIRY  vs.  Vale SA

CN MODERN DAIRY

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CN MODERN DAIRY are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain primary indicators, CN MODERN exhibited solid returns over the last few months and may actually be approaching a breakup point.

Vale SA

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vale SA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, Vale SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with CN MODERN and Vale SA

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

The idea behind CN MODERN DAIRY and Vale SA 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.