Correlation Between Glencore Plc and Vale SA

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

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

Diversification Opportunities for Glencore Plc and Vale SA

0.87

Correlation Coefficient

Glencore Plc  Vale SA

Very poor diversification

The 3 months correlation between Glencore and Vale is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Glencore plc and Vale SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA and Glencore Plc 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 Glencore plc 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 Glencore Plc i.e., Glencore Plc and Vale SA go up and down completely randomly.

Pair Corralation between Glencore Plc and Vale SA

Assuming the 90 days trading horizon Glencore plc is expected to under-perform the Vale SA. In addition to that, Glencore Plc is 1.21 times more volatile than Vale SA. It trades about -0.03 of its total potential returns per unit of risk. Vale SA is currently generating about 0.03 per unit of volatility. If you would invest  928.00  in Vale SA on September 3, 2024 and sell it today you would earn a total of  24.00  from holding Vale SA or generate 2.59% return on investment over 90 days.

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

Glencore plc  vs.  Vale SA

Glencore plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Glencore plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Glencore Plc is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Vale SA

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vale SA are ranked lower than 2 (%) 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 Glencore Plc and Vale SA

The main advantage of trading using opposite Glencore Plc and Vale SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Glencore Plc 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 Glencore plc 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.