Correlation Between Electra Battery and Vale SA

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

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

Diversification Opportunities for Electra Battery and Vale SA

0.03

Correlation Coefficient

Electra Battery  Vale SA

Significant diversification

The 3 months correlation between Electra and Vale is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Electra Battery Materials 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 Electra Battery 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 Electra Battery Materials 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 Electra Battery i.e., Electra Battery and Vale SA go up and down completely randomly.

Pair Corralation between Electra Battery and Vale SA

Given the investment horizon of 90 days Electra Battery Materials is expected to under-perform the Vale SA. In addition to that, Electra Battery is 1.65 times more volatile than Vale SA ADR. It trades about -0.14 of its total potential returns per unit of risk. Vale SA ADR is currently generating about 0.04 per unit of volatility. If you would invest  1,211  in Vale SA ADR on January 29, 2024 and sell it today you would earn a total of  17.00  from holding Vale SA ADR or generate 1.4% return on investment over 90 days.

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

Electra Battery Materials  vs.  Vale SA ADR

Electra Battery Materials

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Electra Battery Materials are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile fundamental drivers, Electra Battery displayed solid returns over the last few months and may actually be approaching a breakup point.

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 Electra Battery and Vale SA

The main advantage of trading using opposite Electra Battery and Vale SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Electra Battery 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 Electra Battery Materials 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.