Correlation Between Vale SA and Alfa Holdings

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

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

Diversification Opportunities for Vale SA and Alfa Holdings

-0.28

Correlation Coefficient

Vale SA  Alfa Holdings

Very good diversification

The 3 months correlation between Vale and Alfa is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA and Alfa Holdings SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alfa Holdings SA 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 are associated (or correlated) with Alfa Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alfa Holdings SA has no effect on the direction of Vale SA i.e., Vale SA and Alfa Holdings go up and down completely randomly.

Pair Corralation between Vale SA and Alfa Holdings

Assuming the 90 days trading horizon Vale SA is expected to under-perform the Alfa Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Vale SA is 2.0 times less risky than Alfa Holdings. The stock trades about -0.01 of its potential returns per unit of risk. The Alfa Holdings SA is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  885.00  in Alfa Holdings SA on September 18, 2024 and sell it today you would earn a total of  24.00  from holding Alfa Holdings SA or generate 2.71% return on investment over 90 days.

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

Vale SA  vs.  Alfa Holdings SA

Vale SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Alfa Holdings SA

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Alfa Holdings SA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Alfa Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vale SA and Alfa Holdings

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

The idea behind Vale SA and Alfa Holdings 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.