Correlation Between Safety Insurance and Vale SA

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

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

Diversification Opportunities for Safety Insurance and Vale SA

-0.52

Correlation Coefficient

Safety Insurance  Vale SA

Excellent diversification

The 3 months correlation between Safety and Vale is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Safety Insurance Group and Vale SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA and Safety Insurance 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 Safety Insurance Group 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 Safety Insurance i.e., Safety Insurance and Vale SA go up and down completely randomly.

Pair Corralation between Safety Insurance and Vale SA

Assuming the 90 days horizon Safety Insurance Group is expected to generate 1.03 times more return on investment than Vale SA. However, Safety Insurance is 1.03 times more volatile than Vale SA. It trades about 0.35 of its potential returns per unit of risk. Vale SA is currently generating about -0.17 per unit of risk. If you would invest  6,971  in Safety Insurance Group on September 4, 2024 and sell it today you would earn a total of  979.00  from holding Safety Insurance Group or generate 14.04% return on investment over 90 days.

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

Safety Insurance Group  vs.  Vale SA

Safety Insurance

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Safety Insurance Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Safety Insurance is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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

Pair Trading with Safety Insurance and Vale SA

The main advantage of trading using opposite Safety Insurance and Vale SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Safety Insurance 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 Safety Insurance Group 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.