Correlation Between Citigroup and Gerdau SA

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

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

Diversification Opportunities for Citigroup and Gerdau SA

0.35

Correlation Coefficient

Citigroup  Gerdau SA

Weak diversification

The 3 months correlation between Citigroup and Gerdau is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Gerdau SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gerdau SA and Citigroup 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 Citigroup are associated (or correlated) with Gerdau SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gerdau SA has no effect on the direction of Citigroup i.e., Citigroup and Gerdau SA go up and down completely randomly.

Pair Corralation between Citigroup and Gerdau SA

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.06 times less return on investment than Gerdau SA. In addition to that, Citigroup is 1.2 times more volatile than Gerdau SA. It trades about 0.06 of its total potential returns per unit of risk. Gerdau SA is currently generating about 0.08 per unit of volatility. If you would invest  5,877  in Gerdau SA on September 29, 2024 and sell it today you would earn a total of  924.00  from holding Gerdau SA or generate 15.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.21%
Values	Daily Returns

Citigroup  vs.  Gerdau SA

Citigroup

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental indicators, Citigroup exhibited solid returns over the last few months and may actually be approaching a breakup point.

Gerdau SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gerdau SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Gerdau SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Citigroup and Gerdau SA

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

The idea behind Citigroup and Gerdau 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.