Correlation Between Metalurgica Gerdau and NXP Semiconductors

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

Diversification Opportunities for Metalurgica Gerdau and NXP Semiconductors

0.01

Correlation Coefficient

Metalurgica Gerdau  NXP Semiconductors

Significant diversification

The 3 months correlation between Metalurgica and NXP is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Metalurgica Gerdau SA and NXP Semiconductors NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NXP Semiconductors 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 NXP Semiconductors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NXP Semiconductors has no effect on the direction of Metalurgica Gerdau i.e., Metalurgica Gerdau and NXP Semiconductors go up and down completely randomly.

Pair Corralation between Metalurgica Gerdau and NXP Semiconductors

Assuming the 90 days trading horizon Metalurgica Gerdau SA is expected to generate 0.78 times more return on investment than NXP Semiconductors. However, Metalurgica Gerdau SA is 1.28 times less risky than NXP Semiconductors. It trades about 0.11 of its potential returns per unit of risk. NXP Semiconductors NV is currently generating about 0.04 per unit of risk. If you would invest  1,052  in Metalurgica Gerdau SA on September 12, 2024 and sell it today you would earn a total of  138.00  from holding Metalurgica Gerdau SA or generate 13.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.77%
Values	Daily Returns

Metalurgica Gerdau SA  vs.  NXP Semiconductors NV

Metalurgica Gerdau

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Metalurgica 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, Metalurgica Gerdau unveiled solid returns over the last few months and may actually be approaching a breakup point.

NXP Semiconductors

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with Metalurgica Gerdau and NXP Semiconductors

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

The idea behind Metalurgica Gerdau SA and NXP Semiconductors NV 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.