Correlation Between Gerdau SA and Universal Stainless

Can any of the company-specific risk be diversified away by investing in both Gerdau SA and Universal Stainless 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 Universal Stainless 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 Universal Stainless Alloy, you can compare the effects of market volatilities on Gerdau SA and Universal Stainless 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 Universal Stainless. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gerdau SA and Universal Stainless.

Diversification Opportunities for Gerdau SA and Universal Stainless

-0.13

Correlation Coefficient

Gerdau SA  Universal Stainless

Good diversification

The 3 months correlation between Gerdau and Universal is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Gerdau SA ADR and Universal Stainless Alloy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Stainless Alloy 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 Universal Stainless. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Stainless Alloy has no effect on the direction of Gerdau SA i.e., Gerdau SA and Universal Stainless go up and down completely randomly.

Pair Corralation between Gerdau SA and Universal Stainless

Considering the 90-day investment horizon Gerdau SA is expected to generate 1.16 times less return on investment than Universal Stainless. But when comparing it to its historical volatility, Gerdau SA ADR is 1.04 times less risky than Universal Stainless. It trades about 0.04 of its potential returns per unit of risk. Universal Stainless Alloy is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  4,212  in Universal Stainless Alloy on August 30, 2024 and sell it today you would earn a total of  229.00  from holding Universal Stainless Alloy or generate 5.44% return on investment over 90 days.

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

Gerdau SA ADR  vs.  Universal Stainless Alloy

Gerdau SA ADR

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Gerdau SA ADR are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Gerdau SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Universal Stainless Alloy

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Stainless Alloy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Universal Stainless may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Gerdau SA and Universal Stainless

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

The idea behind Gerdau SA ADR and Universal Stainless Alloy 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.