Correlation Between Gerdau SA and Acerinox

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

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

Diversification Opportunities for Gerdau SA and Acerinox

0.21

Correlation Coefficient

Gerdau SA  Acerinox

Modest diversification

The 3 months correlation between Gerdau and Acerinox is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Gerdau SA ADR and Acerinox SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Acerinox SA ADR and Gerdau 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 Gerdau SA ADR are associated (or correlated) with Acerinox. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Acerinox SA ADR has no effect on the direction of Gerdau SA i.e., Gerdau SA and Acerinox go up and down completely randomly.

Pair Corralation between Gerdau SA and Acerinox

Considering the 90-day investment horizon Gerdau SA ADR is expected to generate 1.04 times more return on investment than Acerinox. However, Gerdau SA is 1.04 times more volatile than Acerinox SA ADR. It trades about 0.06 of its potential returns per unit of risk. Acerinox SA ADR is currently generating about 0.04 per unit of risk. If you would invest  327.00  in Gerdau SA ADR on September 12, 2024 and sell it today you would earn a total of  23.00  from holding Gerdau SA ADR or generate 7.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Gerdau SA ADR  vs.  Acerinox SA ADR

Gerdau SA ADR

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Gerdau SA ADR are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Gerdau SA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Acerinox SA ADR

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Acerinox SA ADR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Acerinox is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Gerdau SA and Acerinox

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

The idea behind Gerdau SA ADR and Acerinox 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.