Correlation Between Vale SA and Nova Minerals

Can any of the company-specific risk be diversified away by investing in both Vale SA and Nova Minerals 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 Nova Minerals 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 Nova Minerals Limited, you can compare the effects of market volatilities on Vale SA and Nova Minerals 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 Nova Minerals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vale SA and Nova Minerals.

Diversification Opportunities for Vale SA and Nova Minerals

-0.26

Correlation Coefficient

Vale SA  Nova Minerals

Very good diversification

The 3 months correlation between Vale and Nova is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA ADR and Nova Minerals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nova Minerals Limited 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 Nova Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nova Minerals Limited has no effect on the direction of Vale SA i.e., Vale SA and Nova Minerals go up and down completely randomly.

Pair Corralation between Vale SA and Nova Minerals

Given the investment horizon of 90 days Vale SA ADR is expected to under-perform the Nova Minerals. But the stock apears to be less risky and, when comparing its historical volatility, Vale SA ADR is 3.11 times less risky than Nova Minerals. The stock trades about 0.0 of its potential returns per unit of risk. The Nova Minerals Limited is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  555.00  in Nova Minerals Limited on September 2, 2024 and sell it today you would earn a total of  410.00  from holding Nova Minerals Limited or generate 73.87% return on investment over 90 days.

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

Vale SA ADR  vs.  Nova Minerals Limited

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.

Nova Minerals Limited

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nova Minerals Limited are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nova Minerals sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vale SA and Nova Minerals

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

The idea behind Vale SA ADR and Nova Minerals Limited 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.