Correlation Between Armada Hflr and Vale SA

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

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

Diversification Opportunities for Armada Hflr and Vale SA

0.35

Correlation Coefficient

Armada Hflr  Vale SA

Weak diversification

The 3 months correlation between Armada and Vale is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Armada Hflr Pr and Vale SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA and Armada Hflr 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 Armada Hflr Pr 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 Armada Hflr i.e., Armada Hflr and Vale SA go up and down completely randomly.

Pair Corralation between Armada Hflr and Vale SA

Considering the 90-day investment horizon Armada Hflr Pr is expected to generate 0.55 times more return on investment than Vale SA. However, Armada Hflr Pr is 1.81 times less risky than Vale SA. It trades about -0.07 of its potential returns per unit of risk. Vale SA is currently generating about -0.19 per unit of risk. If you would invest  1,092  in Armada Hflr Pr on September 27, 2024 and sell it today you would lose (55.00) from holding Armada Hflr Pr or give up 5.04% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	92.06%
Values	Daily Returns

Armada Hflr Pr  vs.  Vale SA

Armada Hflr Pr

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Armada Hflr Pr has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical indicators, Armada Hflr is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Vale SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vale SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Armada Hflr and Vale SA

The main advantage of trading using opposite Armada Hflr and Vale SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Armada Hflr 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 Armada Hflr Pr 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.