Correlation Between Gerdau SA and A1LK34

Can any of the company-specific risk be diversified away by investing in both Gerdau SA and A1LK34 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 A1LK34 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Gerdau SA and A1LK34, you can compare the effects of market volatilities on Gerdau SA and A1LK34 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 A1LK34. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gerdau SA and A1LK34.

Diversification Opportunities for Gerdau SA and A1LK34

0.59

Correlation Coefficient

Gerdau SA  A1LK34

Very weak diversification

The 3 months correlation between Gerdau and A1LK34 is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Gerdau SA and A1LK34 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on A1LK34 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 are associated (or correlated) with A1LK34. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of A1LK34 has no effect on the direction of Gerdau SA i.e., Gerdau SA and A1LK34 go up and down completely randomly.

Pair Corralation between Gerdau SA and A1LK34

Assuming the 90 days trading horizon Gerdau SA is expected to generate 10.25 times less return on investment than A1LK34. But when comparing it to its historical volatility, Gerdau SA is 2.12 times less risky than A1LK34. It trades about 0.05 of its potential returns per unit of risk. A1LK34 is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  22,500  in A1LK34 on September 26, 2024 and sell it today you would earn a total of  18,940  from holding A1LK34 or generate 84.18% return on investment over 90 days.

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

Gerdau SA  vs.  A1LK34

Gerdau SA

Risk-Adjusted Performance

4 of 100

Insignificant

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

A1LK34

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in A1LK34 are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, A1LK34 sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gerdau SA and A1LK34

The main advantage of trading using opposite Gerdau SA and A1LK34 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gerdau SA position performs unexpectedly, A1LK34 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 A1LK34 will offset losses from the drop in A1LK34's long position.

The idea behind Gerdau SA and A1LK34 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.