Correlation Between Gerdau SA and A1ME34

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Can any of the company-specific risk be diversified away by investing in both Gerdau SA and A1ME34 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 A1ME34 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Gerdau SA and A1ME34, you can compare the effects of market volatilities on Gerdau SA and A1ME34 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 A1ME34. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gerdau SA and A1ME34.

Diversification Opportunities for Gerdau SA and A1ME34

0.93
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Gerdau and A1ME34 is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Gerdau SA and A1ME34 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on A1ME34 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 A1ME34. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of A1ME34 has no effect on the direction of Gerdau SA i.e., Gerdau SA and A1ME34 go up and down completely randomly.

Pair Corralation between Gerdau SA and A1ME34

Assuming the 90 days trading horizon Gerdau SA is expected to generate 2.59 times less return on investment than A1ME34. In addition to that, Gerdau SA is 1.43 times more volatile than A1ME34. It trades about 0.02 of its total potential returns per unit of risk. A1ME34 is currently generating about 0.06 per unit of volatility. If you would invest  3,038  in A1ME34 on September 23, 2024 and sell it today you would earn a total of  1,592  from holding A1ME34 or generate 52.4% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy98.8%
ValuesDaily Returns

Gerdau SA  vs.  A1ME34

 Performance 
       Timeline  
Gerdau SA 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Gerdau SA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Gerdau SA unveiled solid returns over the last few months and may actually be approaching a breakup point.
A1ME34 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in A1ME34 are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, A1ME34 sustained solid returns over the last few months and may actually be approaching a breakup point.

Gerdau SA and A1ME34 Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Gerdau SA and A1ME34

The main advantage of trading using opposite Gerdau SA and A1ME34 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gerdau SA position performs unexpectedly, A1ME34 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 A1ME34 will offset losses from the drop in A1ME34's long position.
The idea behind Gerdau SA and A1ME34 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.

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