Correlation Between Alphabet and Vale SA

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

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

Diversification Opportunities for Alphabet and Vale SA

-0.04

Correlation Coefficient

Alphabet  Vale SA

Good diversification

The 3 months correlation between Alphabet and Vale is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and Vale SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA ADR and Alphabet 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 Alphabet Inc Class C 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 ADR has no effect on the direction of Alphabet i.e., Alphabet and Vale SA go up and down completely randomly.

Pair Corralation between Alphabet and Vale SA

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 0.74 times more return on investment than Vale SA. However, Alphabet Inc Class C is 1.36 times less risky than Vale SA. It trades about 0.09 of its potential returns per unit of risk. Vale SA ADR is currently generating about 0.0 per unit of risk. If you would invest  15,840  in Alphabet Inc Class C on August 31, 2024 and sell it today you would earn a total of  1,242  from holding Alphabet Inc Class C or generate 7.84% return on investment over 90 days.

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

Alphabet Inc Class C  vs.  Vale SA ADR

Alphabet Class C

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Alphabet may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Vale SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vale SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Vale SA is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Alphabet and Vale SA

The main advantage of trading using opposite Alphabet and Vale SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alphabet 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 Alphabet Inc Class C and Vale SA ADR 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.