Correlation Between Companhia Energtica and Metalurgica Gerdau

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Can any of the company-specific risk be diversified away by investing in both Companhia Energtica and Metalurgica Gerdau 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 Companhia Energtica and Metalurgica Gerdau into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Companhia Energtica de and Metalurgica Gerdau SA, you can compare the effects of market volatilities on Companhia Energtica and Metalurgica Gerdau 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 Companhia Energtica with a short position of Metalurgica Gerdau. Check out your portfolio center. Please also check ongoing floating volatility patterns of Companhia Energtica and Metalurgica Gerdau.

Diversification Opportunities for Companhia Energtica and Metalurgica Gerdau

0.45
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Companhia and Metalurgica is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Companhia Energtica de and Metalurgica Gerdau SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metalurgica Gerdau and Companhia Energtica 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 Companhia Energtica de are associated (or correlated) with Metalurgica Gerdau. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metalurgica Gerdau has no effect on the direction of Companhia Energtica i.e., Companhia Energtica and Metalurgica Gerdau go up and down completely randomly.

Pair Corralation between Companhia Energtica and Metalurgica Gerdau

Assuming the 90 days trading horizon Companhia Energtica is expected to generate 2.99 times less return on investment than Metalurgica Gerdau. But when comparing it to its historical volatility, Companhia Energtica de is 1.31 times less risky than Metalurgica Gerdau. It trades about 0.04 of its potential returns per unit of risk. Metalurgica Gerdau SA is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,031  in Metalurgica Gerdau SA on September 1, 2024 and sell it today you would earn a total of  115.00  from holding Metalurgica Gerdau SA or generate 11.15% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Companhia Energtica de  vs.  Metalurgica Gerdau SA

 Performance 
       Timeline  
Companhia Energtica 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Companhia Energtica de are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Companhia Energtica is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.
Metalurgica Gerdau 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Metalurgica Gerdau SA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Metalurgica Gerdau may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Companhia Energtica and Metalurgica Gerdau Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Companhia Energtica and Metalurgica Gerdau

The main advantage of trading using opposite Companhia Energtica and Metalurgica Gerdau positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Companhia Energtica position performs unexpectedly, Metalurgica Gerdau 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 Metalurgica Gerdau will offset losses from the drop in Metalurgica Gerdau's long position.
The idea behind Companhia Energtica de and Metalurgica 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.

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