Correlation Between Vale SA and American Battery

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

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

Diversification Opportunities for Vale SA and American Battery

0.54

Correlation Coefficient

Vale SA  American Battery

Very weak diversification

The 3 months correlation between Vale and American is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA ADR and American Battery Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Battery Tec 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 ADR are associated (or correlated) with American Battery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Battery Tec has no effect on the direction of Vale SA i.e., Vale SA and American Battery go up and down completely randomly.

Pair Corralation between Vale SA and American Battery

Given the investment horizon of 90 days Vale SA ADR is expected to under-perform the American Battery. But the stock apears to be less risky and, when comparing its historical volatility, Vale SA ADR is 2.37 times less risky than American Battery. The stock trades about -0.08 of its potential returns per unit of risk. The American Battery Technology is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  100.00  in American Battery Technology on September 14, 2024 and sell it today you would lose (5.21) from holding American Battery Technology or give up 5.21% of portfolio value over 90 days.

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

Vale SA ADR  vs.  American Battery Technology

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.

American Battery Tec

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days American Battery Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, American Battery is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Vale SA and American Battery

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

The idea behind Vale SA ADR and American Battery Technology 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.