Correlation Between Brazil Potash and Vale SA

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

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

Diversification Opportunities for Brazil Potash and Vale SA

-0.52

Correlation Coefficient

Brazil Potash  Vale SA

Excellent diversification

The 3 months correlation between Brazil and Vale is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Brazil Potash Corp 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 Brazil Potash 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 Brazil Potash Corp 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 Brazil Potash i.e., Brazil Potash and Vale SA go up and down completely randomly.

Pair Corralation between Brazil Potash and Vale SA

Considering the 90-day investment horizon Brazil Potash Corp is expected to under-perform the Vale SA. In addition to that, Brazil Potash is 2.18 times more volatile than Vale SA ADR. It trades about -0.32 of its total potential returns per unit of risk. Vale SA ADR is currently generating about -0.08 per unit of volatility. If you would invest  1,050  in Vale SA ADR on September 14, 2024 and sell it today you would lose (121.00) from holding Vale SA ADR or give up 11.52% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	17.19%
Values	Daily Returns

Brazil Potash Corp  vs.  Vale SA ADR

Brazil Potash Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brazil Potash Corp 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 basic 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.

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 latest weak performance, the Stock's essential indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Brazil Potash and Vale SA

The main advantage of trading using opposite Brazil Potash and Vale SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brazil Potash 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 Brazil Potash Corp 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.