Correlation Between Metalurgica Gerdau and Gerdau SA

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

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

Diversification Opportunities for Metalurgica Gerdau and Gerdau SA

0.76

Correlation Coefficient

Metalurgica Gerdau  Gerdau SA

Poor diversification

The 3 months correlation between Metalurgica and Gerdau is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Metalurgica Gerdau SA and Gerdau SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gerdau SA and Metalurgica Gerdau 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 Metalurgica Gerdau SA are associated (or correlated) with Gerdau SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gerdau SA has no effect on the direction of Metalurgica Gerdau i.e., Metalurgica Gerdau and Gerdau SA go up and down completely randomly.

Pair Corralation between Metalurgica Gerdau and Gerdau SA

Assuming the 90 days trading horizon Metalurgica Gerdau is expected to generate 1.55 times less return on investment than Gerdau SA. But when comparing it to its historical volatility, Metalurgica Gerdau SA is 1.13 times less risky than Gerdau SA. It trades about 0.09 of its potential returns per unit of risk. Gerdau SA is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,812  in Gerdau SA on September 5, 2024 and sell it today you would earn a total of  270.00  from holding Gerdau SA or generate 14.9% return on investment over 90 days.

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

Metalurgica Gerdau SA  vs.  Gerdau SA

Metalurgica Gerdau

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Metalurgica Gerdau SA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Metalurgica Gerdau may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Gerdau SA

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gerdau SA are ranked lower than 9 (%) 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.

Pair Trading with Metalurgica Gerdau and Gerdau SA

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

The idea behind Metalurgica Gerdau SA and Gerdau SA 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .