Correlation Between Vale SA and Star Diamond

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

By analyzing existing cross correlation between Vale SA and Star Diamond, you can compare the effects of market volatilities on Vale SA and Star Diamond 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 Star Diamond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vale SA and Star Diamond.

Diversification Opportunities for Vale SA and Star Diamond

-0.13

Correlation Coefficient

Vale SA  Star Diamond

Good diversification

The 3 months correlation between Vale and Star is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA and Star Diamond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Star Diamond 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 are associated (or correlated) with Star Diamond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Star Diamond has no effect on the direction of Vale SA i.e., Vale SA and Star Diamond go up and down completely randomly.

Pair Corralation between Vale SA and Star Diamond

Assuming the 90 days trading horizon Vale SA is expected to generate 56.74 times less return on investment than Star Diamond. But when comparing it to its historical volatility, Vale SA is 9.04 times less risky than Star Diamond. It trades about 0.02 of its potential returns per unit of risk. Star Diamond is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2.35  in Star Diamond on September 4, 2024 and sell it today you would earn a total of  0.15  from holding Star Diamond or generate 6.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Vale SA  vs.  Star Diamond

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 latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Star Diamond

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Star Diamond are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Star Diamond reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vale SA and Star Diamond

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

The idea behind Vale SA and Star Diamond 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.

Check out your portfolio center.

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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.