Correlation Between Gerdau SA and Steel Dynamics

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

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

Diversification Opportunities for Gerdau SA and Steel Dynamics

0.58

Correlation Coefficient

Gerdau SA  Steel Dynamics

Very weak diversification

The 3 months correlation between Gerdau and Steel is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Gerdau SA and Steel Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steel Dynamics 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 Steel Dynamics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steel Dynamics has no effect on the direction of Gerdau SA i.e., Gerdau SA and Steel Dynamics go up and down completely randomly.

Pair Corralation between Gerdau SA and Steel Dynamics

Assuming the 90 days trading horizon Gerdau SA is expected to generate 1.37 times less return on investment than Steel Dynamics. But when comparing it to its historical volatility, Gerdau SA is 1.29 times less risky than Steel Dynamics. It trades about 0.11 of its potential returns per unit of risk. Steel Dynamics is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  11,243  in Steel Dynamics on September 13, 2024 and sell it today you would earn a total of  2,112  from holding Steel Dynamics or generate 18.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Gerdau SA  vs.  Steel Dynamics

Gerdau SA

Risk-Adjusted Performance

8 of 100

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.

Steel Dynamics

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile essential indicators, Steel Dynamics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gerdau SA and Steel Dynamics

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

The idea behind Gerdau SA and Steel Dynamics 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.