Correlation Between Vale SA and CHINA HUARONG

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

By analyzing existing cross correlation between Vale SA and CHINA HUARONG ENERHD 50, you can compare the effects of market volatilities on Vale SA and CHINA HUARONG 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 CHINA HUARONG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vale SA and CHINA HUARONG.

Diversification Opportunities for Vale SA and CHINA HUARONG

0.35

Correlation Coefficient

Vale SA  CHINA HUARONG

Weak diversification

The 3 months correlation between Vale and CHINA is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA and CHINA HUARONG ENERHD 50 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHINA HUARONG ENERHD 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 CHINA HUARONG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHINA HUARONG ENERHD has no effect on the direction of Vale SA i.e., Vale SA and CHINA HUARONG go up and down completely randomly.

Pair Corralation between Vale SA and CHINA HUARONG

Assuming the 90 days trading horizon Vale SA is expected to generate 194.68 times less return on investment than CHINA HUARONG. But when comparing it to its historical volatility, Vale SA is 12.07 times less risky than CHINA HUARONG. It trades about 0.01 of its potential returns per unit of risk. CHINA HUARONG ENERHD 50 is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  0.05  in CHINA HUARONG ENERHD 50 on September 13, 2024 and sell it today you would earn a total of  0.10  from holding CHINA HUARONG ENERHD 50 or generate 200.0% return on investment over 90 days.

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

Vale SA  vs.  CHINA HUARONG ENERHD 50

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. 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.

CHINA HUARONG ENERHD

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA HUARONG ENERHD 50 are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CHINA HUARONG reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vale SA and CHINA HUARONG

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

The idea behind Vale SA and CHINA HUARONG ENERHD 50 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.